Crude Rises as Iran Stays Defiant

Crude for July delivery moves above $72 a barrel.
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Updated from 2:12 p.m. EDT

Crude prices rebounded Friday after Iran said it won't halt plans to begin uranium enrichment, defying U.S. and European demands, and production dropped in Nigeria.

Light, sweet crude rose $1.99 to close at a three-week high of $72.33 a barrel. The rally in oil prices and a refinery fire propped up prices of gasoline by 7 cents to $2.19 a gallon. Heating oil added 4 cents to $2.01 a gallon.

"Iran is determined to go ahead with its nuclear enrichment work for peaceful purposes," the deputy head of Iran's Atomic Energy Organization Mohammad Saeedi said, according to

Reuters

.

Members of the U.N. Security Council and Germany put together a package of incentives late Thursday to persuade Iran to drop uranium enrichment. The content of the proposal was unknown, but it is expected to be presented to Iran in next few days. There are reports the proposal allows Iran to build a light-water nuclear reactor and includes trade deals.

Secretary of State Condoleezza Rice said Friday that Iran had to respond within weeks or face penalties. If Iran accepts the package, it would avert the threat of economic sanctions and potential military strikes.

The markets are worried Iran may retaliate with lower crude exports in the event of any U.N.-led actions against it. As the world's fourth-largest oil producer, any cuts in supply could quickly drive up prices. But many analysts discount any moves to punish Iran because the world is too dependent on its crude.

Crude has risen and fallen on negotiations with Iran, production losses in Nigeria, booming demand in China and India, and Venezuela's moves to renationalize its oil industry. Soaring demand for crude has slimmed already tight supplies and kept margins low. The world consumes 85 million barrels of oil per day, but there are only 2 million barrels of spare capacity, much of it from Saudi Arabia.

In Nigeria, a pipeline leak and the kidnapping of a work crew were lending support to rising crude prices. Production in Africa's largest crude exporter has been cut by 500,000 barrels a day this year thanks to rebel attacks on Nigeria's pipelines, platforms and rigs. Nigeria has become increasingly important to the U.S. as it tries to reduce its dependence on Middle Eastern crude.

Royal Dutch Shell

(RDS.A)

reported a pipeline leak of 50,000 barrels Friday, but officials were unsure whether the leak was caused by rebels or not.

Unknown gunmen kidnapped eight foreign oil workers from an offshore rig operated by the Norwegian company Fred Olsen Energy. Although much of Nigeria's crude is pumped onshore and in shallow waters, some companies have focused on deeper waters to stave off rebel attacks. That move has now been put in jeopardy.

Gasoline prices were rising on increased demand and refinery problems.

Valero Energy

(VLO) - Get Report

, the country's largest independent refiner, slashed production by 70,000 barrels at its Corpus Christi, Texas, refinery after a lightning strike. The refinery has capacity to process up to 340,000 barrels of crude per day.

On Thursday, the Energy Department said demand for gasoline rose nearly 1% over the past few weeks. Traders have been concerned high gasoline prices would crimp demand during the peak summer driving season, which began on Monday.

Natural gas prices climbed 18 cents to settle at a three-week high of $6.62 per million British thermal units. Warmer weather has propped up the contract in recent days as demand for air conditioning increases. Utilities use natural gas to generate the electricity used to cool and warm homes.

Shares of oil producers and service companies were rising 2%. Gains on the Philadelphia Oil Service index were led by

Baker Hughes

(BHI)

,

Transocean

(RIG) - Get Report

and

Cameron International

(CAM)

.

On the Amex Oil index, Valero,

Kerr-McGee

(KMG)

,

Marathon Oil

(MRO) - Get Report

and

Hess

(HES) - Get Report

were leading the increase of nearly 2%.