Updated from 2:04 a.m. EDT
Oil prices pushed above $72 a barrel Tuesday on surging Chinese demand for crude and concerns that an impasse with Iran over its nuclear program could cut supplies.
Light, sweet crude for July delivery closed at $72.03 a barrel, up 66 cents. Wholesale gasoline followed oil prices higher, adding 1 cent to $2.14 a gallon on expected higher demand during the summer driving season.
Shares of natural gas suppliers were rising sharply following a management proposal to buy out public shareholders of pipeline operator
for $13.5 billion. Oil drillers and service companies were both down.
Chinese demand for crude soared 10.8% last month compared to April 2005, the highest increase in two years, according to government figures. China is the second-largest energy consumer behind the U.S.
The start of the hurricane season on Thursday was also underpinning prices. Government forecasters last week said this year's season will be "above normal" with 13 to 16 named storms and eight to 10 hurricanes. Last year, there were 28 storms, 15 of which became hurricanes, according to the National Oceanic and Atmospheric Administration.
Eight months after hurricanes Katrina and Rita, nearly 22% of the Gulf of Mexico's oil production and 13% of its natural gas output still remains offline and prices nearing record prices following the hurricanes.
Energy traders were disregarding comments from OPEC President Edmund Daukoro that the group, which pumps 40% of the world's oil, would maintain record production at its meeting Thursday. OPEC has been producing around 28 million barrels of oil per day since the middle of last year to meet rising demand and cover supply disruptions.
The world consumes around 85 million barrels of oil per day, though soaring demand in Asia and the U.S. has tightened supplies and kept prices high. Real or perceived supply problems force oil prices higher.
In Nigeria, rebels have cut oil production by a quarter in a bid to gain a share of the country's oil wealth. Although
Royal Dutch Shell
, which has 455,000 barrels of crude per day due to the attacks, has promised to restart production, it has yet to send in teams to do so. War in Iraq and a simmering dispute with Iran over its plans to enrich uranium on a large scale have keep prices high.
Members of the U.N. Security Council meet on Thursday to put the finishing touches on an incentives package designed to persuade Iran to cut its nuclear development activities, but it's unclear whether it will work. Iranian officials have vowed to continue enriching uranium, ostensibly for civilian purposes, though they have said they were open to negotiations.
Lingering production losses along the Gulf Coast have also cut inventories and kept prices high. A switch to ethanol and summer gasoline blends have also restricted stockpiles right at the start of the summer driving season, which began on Monday. Gasoline inventories are almost 3% less than last year.
The release of the weekly U.S. Department of Energy's petroleum update will be delayed one day because the federal government was closed on Monday for the Memorial Day holiday. The report will instead be published on Thursday at 10:30 a.m. EDT.
Mild winter temperatures and low heating demand have boosted supplies of distillates and natural gas, which are both used to heat homes. The spike in crude drove prices of heating oil up 2 cents to $2 a gallon.
A supply glut pushed down natural gas prices by 3 cents to settle at $6.12 per million British thermal units. There is 29% more natural gas in storage than a year ago, which has lead some analysts to conclude that storage space for natural gas could run out before next winter. Such a move would likely result in even lower prices.
Meanwhile, in trading Tuesday, the Philadelphia Oil Service Index and the Amex Oil Index were down 2%.
were leading the declines among oil drillers, losing from 1 to 2% each.
The Amex Natural Gas Index was increasing 1.3%, led by Kinder Morgan,