Publish date:

Oil Prices Post Small Gain

The Energy Department tones down its prediction for second-quarter crude prices.

Updated from 2:06 p.m. EDT

Oil futures erased an early run-up and ended just slightly higher Tuesday, as the Energy Department toned down some price predictions for the second quarter.

June crude closed up 4 cents at $52.07 a barrel on Nymex trading. An electrical outage at

ConocoPhillips'

(COP) - Get Report

refinery in Louisiana, which produces 250,000 barrels a day, kept gasoline higher by 3 cents at $1.51 a gallon.

The Energy Department published a monthly update Tuesday in which it cut its estimate of crude oil's average cost in the second quarter by $6, to $51 a barrel. It also lowered its projection for the average price of gasoline during the months of April through September to $2.17 a gallon, from $2.28.

The report reiterated that global oil markets remain tight despite the downturn in crude prices, noting that "prices remain sensitive to any incremental oil market tightness. Imbalances (real or perceived) in light product markets could cause light crude oil prices to increase to levels above the $51 to $53 per barrel range."

Elsewhere, OPEC President Sheikh Ahmad al-Fahd al-Sabah said on Tuesday that the cartel will produce 30.3 million barrels per day this month, up about 600,000 barrels from April, and will keep up that level through June,

Reuters

reported. "Based on the market and the market's needs, we need to continue with 30.3 million until the third quarter, because the prices have started to stabilize," he told

Reuters

.

OPEC's acting secretary general Adnan Shihab Eldin said in an interview on

CNBC

that the global oil market "is not only responding to market fundamentals" but to geophysical tensions and downstream bottlenecks on which "speculators are thriving."

Members of the cartel have been investing heavily in exploration and production, according to OPEC's secretary general, and are expected to reach excess capacity of 4 to 5 million barrels a day within five years. Nowadays there are about 2 million barrels of spare capacity, he said.

Still, prices are just $6 below their all-time high of $58.28 reached in April, when OPEC had already made significant production increases. A question remains as to whether refineries will be capable of feeding a growing global demand for fuel, prompting traders to secure future crude contracts for fear of a supply crunch.

"The market is trading at the top of a recent price range," says Jeff Mokychic, futures analyst at Bridgeton Global Investors Services. "There is some room for profit-taking if the Energy Department's report tomorrow shows another build in inventories."

The department is expected to say Wednesday that crude stockpiles rose for the 12th time in 13 weeks, this time by 1.8 million barrels. Gasoline reserves are expected to increase by about 1 million barrels.

"Crude at $50 is overvalued considering the amounts we have in inventories, but prices won't really fall back to the low $40s. Seeing how volatile the market is, oil prices can even bounce to $60, but that won't shock the market too much anymore," Mokychic says.

Fears of future supply disruption from major exporting countries with political unrest such as Venezuela and Russia have further exacerbated upward price pressure.

In earnings news,

TheStreet Recommends

El Paso

(EP)

reported first-quarter profit despite significantly lower revenue, as gains from an asset sale helped offset mark-to-market losses on natural gas hedges. The Houston natural gas company earned $106 million, or 17 cents a share, in the quarter, compared with a loss of $206 million, or 32 cents a share, last year. Revenue fell 22% to $1.21 billion. Analysts had been forecasting earnings of 21 cents a share in the 2005 quarter. Shares fell 40 cents, or 3.79%, to $10.15.

NRG Energy

(NRG) - Get Report

, the Princeton, N.J.-based electric utility, said mild weather and high fuel prices cut its first-quarter earnings, although they were still in line with analysts expectations. Net income fell to $22.6 million, or 21 cents a share, from $30.2 million, or 30 cents a share, a year ago. Excluding one-time items, earnings were $14.4 million, or 16 cents a share. The company raised its 2005 EBITDA outlook to $600 million from $560 million. Share rose 91 cents, or 2.79%, to $33.50.

Shares of the newly public offshore exploration company

W&T Offshore

(WTI) - Get Report

jumped more than 5% Tuesday, despite posting only slightly higher earnings for the first quarter and a slip in its production forecast for the second quarter. Shares later in the day rose 60 cents, or 2.86%, to $21.60.

Shares of major oil producers slumped in late Tuesday trading, as the Amex Oil Index dropped 1.56%.

Exxon Mobil

(XOM) - Get Report

fell 1.42%;

ChevronTexaco

(CVX) - Get Report

fell 1.03%; ConocoPhillips lost 1.79%;

Royal Dutch/Shell

(RD)

decreased 1.26%; and

BP

(BP) - Get Report

fell 0.81%.