Updated from 10:55 a.m. EDT
After hitting a five-week low on Wednesday, crude prices gained ground Thursday as some traders felt the selloff was too sharp.
Light, sweet crude rose 76 cents to close at $69.45 a barrel after a four-day decline that sapped 5% from the contract. Wholesale gasoline added 4 cents to $2.01 a gallon, and heating oil increased 3 cents to $1.95 a gallon.
A broad selloff in commodity markets, followed by concerns over the future of
interest rate policy, have driven down the contract.
On Wednesday, oil futures hit a five-week low of $68.69 after the Labor Department's consumer price index came in stronger than expected, raising the prospect of more
rate hikes. Rate hikes to energy traders mean a slowing economy and lower demand for crude.
Wholesale gasoline prices have dropped 16 cents, or 7%, this week as rising supplies allayed fears of a shortage ahead of the summer driving season. Heavy refinery maintenance schedules and a much-ballyhooed switch to ethanol have lowered gasoline supplies and propped up prices by as much as 15% this year.
On Wednesday, the U.S. Energy Department said gasoline inventories surged 1.3 million barrels to 206.4 million barrels thanks to an increase in production and imports. Although supplies are 3.5% below last year, the increase was enough to quell fears of a shortage.
However, analysts think the recent decline was simply a short-term correction and prices will soon start climbing. Strong summer demand for gasoline, supply problems overseas and the threat of hurricane damage to the Gulf Coast's oil industry will keep oil prices above $68 over the long-term, said Michael Fitzpatrick, an energy analyst with Fimat USA in New York.
"Corrections are to be expected, but a broad-based commodity selloff by speculators -- hardly," Fitzpatrick said.
This year, oil prices have risen 11% due to various threats to worldwide supplies, including militant activity in Nigeria and Iraq and the standoff over Iran's nuclear ambitions. As the world's fourth-largest crude producer, Iran has inflamed the energy markets by restarting small-scale uranium enrichment in defiance of the U.N.
The run-up in crude prices comes despite high levels of supplies. Last week, the U.S. Energy Department reported inventories were nearly 5% above a year ago.
A supply glut in natural gas has had the opposite effect on that heating fuel's price, which closed down 13 cents to settle at $6 per million British thermal units. Mild winter temperatures and lower heating demand has sent supplies up 31% over last year to 2 trillion cubic feet.
Supplies climbed 91 million cubic feet in the Energy Department's weekly update released at 10:30 a.m. EDT and are now 53% above the five-year average. Analysts polled by
had expected a boost of 84 million cubic feet in the Energy Department's weekly supply report.
However, those stockpiles could be quickly drawn down and prices could jump if the U.S. has a blistering summer or a third year of strong hurricanes.
"As we move through the summer, every week's weather is going to be a four-point game," said Peter Beutel, president of Cameron Hanover, an energy risk management firm in New Canaan, Ct. "If it is very hot everywhere, prices will jump. If they are not, prices will drop. Hurricanes, or the lack thereof, will be critical."
Energy shares were mixed in trading Thursday, with the Philadelphia Oil Service Index losing 2% and the Amex Oil Index down 1%. In the oil services,
Global Santa Fe
were posting the largest declines.
were dropping the most.