Crude Loses More Ground

Bush calls for more investment.
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Updated from 2:26 p.m. EDT

Oil prices fell for a second session Tuesday after President Bush temporarily cut oil shipments to the country's strategic petroleum reserve to help ease prices.

Light, sweet crude for June delivery closed down 45 cents at $72.88 a barrel, and unleaded gasoline fell 4 cents to $2.12 a gallon on Nymex. A senior administration official told the

Associated Press

that the president halted shipments to the government-owned crude stockpile to drive down gasoline prices and give some relief to consumers. Bush has come under fire recently over high energy prices.

"We have said forever that we do not think that we should be filling it, so that is good," said Bill Klesse, chief executive of

Valero

(VLO) - Get Report

, in a conference call Tuesday. "High gas prices are not good for Valero, the country or consumers."

But any relief will be short-lived, company executives cautioned.

"Even with all the rhetoric that is going on today, there is very little that can be done in the short term to increase supply," Klesse said.

Oil prices have been easing from Friday's record close above $75 a barrel on profit-taking and OPEC's promise Monday to keep pumping at record levels. Cartel members, who pump over a third of the world's crude, refused to increase production from 28 million barrels a day.

But the escalating conflict with Iran over its nuclear ambitions, along with reduced Nigerian crude exports and moves in Venezuela to renationalize the oil industry, have underpinned the recent spike in oil prices. After a two-year hiatus, Tehran resumed uranium enrichment, ostensibly to generate more electricity for civilians. The West, though, suspects Iran has designs on building nuclear weapons with the technology, and may impose economic sanctions or order military strikes against the country.

On Tuesday, Iranian nuclear negotiator Ali Larijani warned that his country will cut all ties with the International Atomic Energy Agency, the U.N.'s nuclear watchdog, if the Security Council decides to slap a trade embargo on Iran over its refusal to cease nuclear development activities.

The U.N. Security Council meets on Friday to discuss its strategy with Iran. Mohamed ElBaradei, the head of the IAEA, will present his report on Iran's activities then. Great Britain and the U.S. are pressing for a trade embargo.

In Nigeria, rebel attacks have cut daily crude production by 25%, or about 500,000 barrels. Militants are vying to gain a share of the country's petrodollars for residents of the Niger River Delta, the source of much of Nigeria's crude.

Royal Dutch Shell

(RDS.A)

, the largest foreign oil operator, have said instability in the region have slowed down its efforts to restart 455,000 barrels of curtailed output. Security concerns also prompted

Exxon Mobil

(XOM) - Get Report

to tell non-essential employees at its 650,000-barrel export facility not to come to work on Tuesday,

Platts

reported. It was unclear what effect the move would have on production.

Venezuelan President Hugo Chavez is reportedly planning to expand his campaign to re-nationalize the country's oil industry, according to

The Wall Street Journal

, and may raise royalties and taxes on companies operating in the country's Orinoco River basin. Companies like

ConocoPhillips

(COP) - Get Report

, ExxonMobil and

Total

(TOT) - Get Report

would likely be hit hard with the changes and could lose billions of dollars in profits. Total S.A. and

Eni

(E) - Get Report

each lost fields in a recent government takeover of privately run fields and probably won't receive compensation for them, the country's oil minister said.

Crude prices have eked out new highs in the face of record inventories that are about 7% over last year. Oil stockpiles are expected to drop by 850,000 barrels from 345.2 million barrels as more refiners increase their run-rates, according to estimates from

Bloomberg

. The U.S. Energy Department's weekly survey will be released on Wednesday at 10:30 a.m. EDT.

Crude, which is processed into jet fuel, heating oil and other refined products, is expected to drop as refiners increased their run-rates by 1% to 87%. An increase would be the first in the past month. Refiners are draining their tanks of gasoline laced with methyl tertiary butyl ether to replace with reformulated gasoline that can be mixed with ethanol. They have until May 5, when their liability protection against MTBE lawsuits ends, to discontinue using the gasoline additive.

Heavy refinery outages have drawn down gasoline inventories 5% below last year. Inventories are expected to decline by 2.7 million barrels to 202.5 million barrels, according to analysts polled by

Bloomberg

. Lower supplies have translated into higher prices, which are 23% this year.

"The MTBE to ethanol switch scheduled for May 6th has the markets nervous of potential gasoline shortages in the near future. For that reason, speculators have bid up the price of gasoline in recent weeks to capitalize on any disruptions," wrote J. Marshall Adkins, a Houston-based energy analyst at Raymond James in a client note.

Mild weather and robust supplies have kept heating fuels low this year. There is 32% more natural gas and 10% more distillates in storage than last year. Stockpiles of distillates are forecast to sink 1.6 million barrels from 114.6 million barrels. Heating oil settled at $2.64 a gallon, up 3 cents.

Natural gas lost 30 cents to $7.25 per million British thermal units as traders eyed above-average supplies and minimal demand. Mild summer weather has dampened demand for air conditioning, prompting utilities and power plants to ease back on their purchasing needs.

This week, a flood of energy companies will be reporting first-quarter earnings. Valero reported earnings of $849 million, or $1.32 a share. Revenue climbed to $20.9 billion, up from $15 billion. Analysts had expected sales of $25 billion and earnings of $1.32 a share, and traders sent down shares $2.41 to $66.69.

BP

(BP) - Get Report

, one of the world's five largest oil companies, saw net income tumble 15% to $5.69 billion, or $1.63 a share, on higher taxes, lower production in Russia and the Gulf of Mexico, and the shutdown of its Texas City refinery. Revenue was pushed up 23% to $67.1 billion by high oil prices during the quarter.

BP shares were down 93 cents at $74.89.

Quarterly net income at

Occidental Petroleum

(OXY) - Get Report

rose 45% to $1.23 billion, or $2.86 a share, and beat analysts' estimates of $2.73 a share.

Revenue soared to $4.57 billion from $3.3 billion last year thanks to higher production and energy prices. Shares were dipping 87 cents to $104.68.