Updated from 12:01 p.m. EDT

Crude prices gained ground Tuesday ahead of a government report that is expected to show a minimal rise in gasoline inventories.

Light, sweet crude for August delivery added 12 cents to close at $71.92 a barrel, spurred on by a rally in gasoline futures. Wholesale gasoline settled up 2 cents at $2.19 a gallon.

A weekly Energy Department report due Wednesday is expected to show gasoline inventories rose at their smallest rate in two months, as more Americans took to the roads during the summer driving season, according to a

Bloomberg

poll of analysts. A modest rise of 450,000 barrels was forecast for the report, which comes out at 10:30 a.m. EDT Wednesday.

Although demand has reduced gasoline stockpiles, refiners have been increasing production to make up for any drawdowns. Refining run-rates are expected to increase 0.3% last week, and crude supplies to have fallen by 1.4 million barrels as more gasoline was produced.

U.S. drivers have been filling up their tanks more, with consumption jumping 0.9% to an average of 9.4 million barrels per day over the past four weeks. Demand is expected to increase as the summer progresses. Inventories are currently 1.2% below last year at 213.4 million barrels.

The closure of a key shipping channel in Louisiana was also supporting prices. Lake Charles, a refining center, was still closed to shipping travel and was not expected to open for another two days as an oil spill was cleaned up. Three refineries, including the country's fourth-largest, were operating at lower rates Tuesday.

Geopolitical problems have also contributed to oil's 18% rise in 2006. Rebel attacks on Nigeria's oil industry, downed production in the Gulf of Mexico from hurricanes Katrina and Rita, and an ongoing spat with Iran, the world's fourth-largest crude producer, over its nuclear program have embroiled the oil markets and kept oil prices high.

Traders are more concerned than ever about global political problems because there is scant spare crude. Rising demand in China, India and the U.S. have crimped supplies and left only 2 million barrels of spare capacity left.

On Tuesday, Iran's supreme leader said there was no need for talks with the U.S. over its nuclear development activities. The U.S. has offered to join ongoing negotiations with Iran over its nuclear program if it first halts enrichment. Earlier this month, European diplomats offered Iran an incentives package to halt its nuclear program, though Iran has said it won't formally respond until mid-August.

"Negotiating with America does not have any benefit for us and we do not need such negotiations," said Ayatollah Ali Khamenei, according to

Reuters

.

However, Tony Snow, the White House Press Secretary, disregarded Khamenei's comments and said the White House awaited an official response from Iran's top nuclear negotiator, Ali Larijani. The EU foreign policy chief is expected to receive an official response from Iran when he meets with Larijani in the next two weeks.

Earlier this year, Iran restarted uranium enrichment after a two-year hiatus and has since shrugged off Western threats of economic sanctions and military attacks. The West believes Iran is developing nuclear weapons, but Iran said the work is for civilian purposes.

The rally in crude prices drove natural gas prices up by 14 cents to $6.11 per million British thermal as some electric generating plants switched to the fuel. Hot weather last week increased demand for the fuel, which is used to generate electricity used to cool homes and companies. Up to 10% of all domestic utilities can use natural gas to generate electricity used in air conditioning or heating.

But a forecast of mild temperatures and an expected increase in distillates drove down heating oil prices by 2 cents to $1.95 a gallon. Distillates are projected to climb by 1.4 million barrels in the Energy Department's report tomorrow.

Surging oil prices sent oil service and exploration shares higher.

Sunoco

(SUN) - Get Report

,

Marathon Oil

(MRO) - Get Report

,

Hess

(HES) - Get Report

and

ExxonMobil

(XOM) - Get Report

were leading the increases on the Amex Oil Index.

Energy companies reporting the largest percentage gains on the New York Stock Exchange included

Frontier Oil

(FTO)

,

Houston Exploration

(THX)

,

Mariner Energy

(ME)

and

W-H Energy Services

(WHQ)

, which were rising 2% to 4%.

Frontier Oil was gaining $1.14, or 4%, to $28.23 after investment bank Friedman Billings Ramsey upgraded the refiner from market perform to outperform. Over the past year, refiners have raked in record profits thanks to new gasoline and diesel standards and limited capacity following Hurricanes Katrina and Rita.

Frontier's authorized 2-for-1 stock split is also payable today for shareholders of record June 19. The stock split was made payable thanks to a doubling of the company's shares outstanding to 180 million.

Houston Exploration rejected an unsolicited $1.8 billion offer from activist hedge fund Jana Partners and said it would explore a possible sale, merger or buybacks as a way to increase shareholder value. Shares were climbing $1.91, or 3%, to $60.97.

Jana, one of the company's largest shareholders, has been campaigning for the company to repurchase shares and put itself up for sale instead of investing in natural gas properties in the continental U.S. Earlier this year, Houston Exploration sold its properties in the shallow waters of the Gulf of Mexico and said it would reinvest the money, a move Jana thought was a poor decision.

W-H Energy Services landed three to four year contracts in Saudi Arabia and Brazil, though financial terms were not disclosed. The Houston-based company will initially provide oil field services to three of Saudi Aramco's rigs, with the number rising to ten in 2007. W-H Energy Services will also work with Petroleo Brasileiro or Petrobras. Shares were last up 94 cents, or 2%, to $46.40.