Updated from 12:02 p.m. ESTOil prices skidded Friday as traders took profits after a three-day climb and concerns eased over inventory levels. Light, sweet crude lost 52 cents to close at $66.63 per barrel, retreating from a two-month high of $67.15 on Thursday. May crude rose 4% this week on a mix of low gasoline supplies, supply problems in Nigeria and an ongoing dispute with Iran over nuclear development. Unleaded gasoline was off 3 cents at $1.88 a gallon by the end of trading, down from the five-month high of $1.99 it touched on Thursday. The expiration of the April contract at the end of trading today was contributing to some of the selloff. Still, traders expect that the drop is temporary and that wholesale gasoline prices will hit new highs this summer. "Between the MTBE situation, implied demand and the hurricane season approaching, gasoline will likely go up to $2.30 wholesale," said Guy Gleichmann, president of United Strategic Investors Group, a commodity brokerage in Hollywood, Fla. In energy markets, there has been concern that gasoline on hand won't be enough to meet peak summer driving demand, because refiners have shut many of their units for seasonal maintenance and for new fuel requirements. Refineries are rushing to phase out methyl tertiary butyl ether, a gasoline additive that may cause water pollution, by the end of May. Refiners will then have to make reformulated gasoline that can be blended with ethanol. Inventories of gasoline stood at 216.2 million barrels as of last week, down 5.4 million barrels from the week before. The decline was the deepest since Aug. 2003, but supplies still remain slightly above last year's. Gasoline supplies were expected to rebound when BP's ( BP) Texas City, Texas, refinery, which processes 460,000 barrels of crude per day, came back on line today, but its restart has been delayed until mid-April, Dow Jones reported. The refinery, the site of one of the deadliest accidents in a decade, was closed before Hurricane Rita made landfall last year. Since then, BP has been reviewing safety procedures at the plant.
Hovensa, a refinery owned by Petroleos de Venezuela and Amerada Hess ( AHC) in St. Croix, was expected to resume operation on Saturday, but repairs were still not complete on Friday. The refinery is the second largest in the Western Hemisphere and processes around 500,000 barrels of oil per day. It has been shut since March 11 because of a mechanical failure. Low gasoline inventories were vying for attention with disrupted crude supplies in Nigeria, Iran's refusal to back down from its drive for nuclear power and Venezuela's clampdown on foreign oil companies. Although crude supplies are at their highest point in over seven years, traders have largely focused their attentions overseas. "Fundamentally, crude should be sitting at $45," said Mike Reed, vice president of research and analysis at ICAP Energy in Louisville, Ky. "Crude at $66 or $67 a barrel is a little bit rich." Rebels in Nigeria, by capturing foreign oil workers and blowing up pipelines, have cost the country $1 billion in lost revenue. Daily crude production has fallen by 640,000 barrels of day from 2.4 million barrels. However, output improved somewhat after Italian oil company Eni SpA ( E) resumed operations at a 75,000-barrel pipeline that militants had blown up. Tehran has vowed to continue enriching uranium despite a recent statement from the U.N. Security Council calling on Iran to cease. Economic sanctions have been offered as a way to punish Iran, but they are unlikely to come to pass because Iran is OPEC's second-largest crude producer. A trade embargo would likely shave world oil supplies and drive prices to dizzying heights. Concern eased somewhat after Iran's foreign minister said Tehran would not use oil exports as a weapon in its fight with the West. Iran had said it might retaliate against any actions against it by cutting crude exports to the West.
Venezuela has also upped the ante on oil companies there and said they must give a larger share of their profits to the state. On Thursday, the country's oil minister said Exxon Mobil ( XOM), the world's largest publicly traded oil company, was no longer welcome. The oil giant has been the lone voice of dissent against Venezuela's clampdown on the petroleum industry. On Thursday, the Venezuelan congress approved plans to turn over 32 private oil fields to state-run oil company Petroleos de Venezuela. In the new guidelines, companies like Total ( TOT) and Royal Dutch Shell ( RDS.A) must sign over a 60% stake in the oil fields to the state, allow the state to control the joint venture, and pay higher royalty and income taxes. Exxon shares lost 20 cents to $60.92; Total fell 80 cents to $131.95, and Shell declined 62 cents to $62.39 on Friday, helped in part by decreasing crude prices. The April contract for heating oil, which expired Friday, fell 2 cents to settle at $1.86 a gallon thanks to a decline in stockpiles last week. The Energy Department reported on Wednesday distillates, of which heating oil is a part, dropped 2.5 million barrels to 124.2 million barrels. However, thanks to one of the warmest winters on record, supplies are 15% over last year. Mild temperatures have also boosted the amount of natural gas in storage by 37% over last year, and 62% over the five-year average. Natural gas lost 27 cents to finish at $7.21 per million British thermal units.