Updated from 12:23 p.m. EDTOil prices rose Monday as Israel's moratorium on air strikes in Lebanon proved short-lived. Natural gas staged its biggest rally this year, meanwhile, on concerns that a heat wave in the U.S. will push up electricity consumption. September crude added $1.16 to $74.40 a barrel after Israel jets struck southern Lebanon Monday in support of ground troops fighting Hezbollah. The attacks came 12 hours after Israel announced a 48-hour cessation of bombing raids, a pledge it said depended on military developments on the ground. Forecasts of hot weather in the Northeast sent natural gas up $1.02, or 14%, to $8.21 per million British thermal units. The fuel is used by some utilities to generate electricity. A heat wave moved into the Midwest and Northeast Monday, driving up temperatures to the high 90s and low 100s. On Tuesday, temperatures in those regions are expected to eclipse the highs seen two weeks ago and may set records. A cold front will provide some relief from scorching temperatures and high humidity by the end of the week, according to AccuWeather, a forecaster in State College, Pa. Hot weather has plagued the western U.S. for the past two weeks and contributed to a surprising drawdown in stockpiles the previous week. Inventories usually rise by an average of 65 billion cubic feet during the summer. Booming demand hit a fresh record of 96,314 gigawatt hours of electricity for the week ended July 22, over 1% higher than last year, according to the Edison Electric Institute in Washington, DC. Heating oil jumped 2 cents to $1.96 a gallon and wholesale gasoline was up 4 cents at $2.28 a gallon. Prices of gasoline and heating oil for delivery in August were volatile today because the contracts come due today. On Sunday, Israel agreed to a 48-hour bombing moratorium after a raid on the Lebanese village of Qana killed as many as 60 people, many of them children. The attack made Sunday the deadliest day yet in the two-week conflict, which has killed upwards of 500 people. Earlier Monday, oil prices fell below $73 a barrel after U.S. Secretary of State Condoleezza Rice indicated a ceasefire resolution could be hammered out in the U.N. Security Council by this week. But Israel's prime minister rejected international pressure to halt its aerial bombardment until its two kidnapped soldiers are released. The war was started over Hezbollah's abduction of the two. "The fighting continues. There is no ceasefire and there will not be any ceasefire in the coming days," said Israeli Prime Minister Ehud Olmert, according to the BBC. Israeli officials have said they would not halt the fighting until an international peacekeeping force arrives in the area. Later this week, the U.N. Security Council is set to discuss sending in an international force, which could be dispatched as early as next week.
A leak in one of Russia's major pipelines to Europe that was later repaired this afternoon also supported higher prices. The 2,485-mile pipeline, located near Russia's western border with Ukraine and Belarus, carries over 1.2 million barrels of oil per day. Even though Lebanon and Israel do not produce much oil, energy prices have been rising and falling according to developments in the conflict out of concern big oil producers will be drawn in. Traders have been most concerned that Iran, the world's fourth-largest producer, would join the fray because it backs the militants with money and weapons. Oil prices have become closely tied with geopolitics because of slimming supplies and soaring demand. Thanks to the booming Chinese and Indian economies, oil consumption has climbed to 85 million barrels a day this year. And while there's enough to meet demand --- Saudi Arabia has around 2 million barrels of spare capacity --- there's not enough left over to cover long-term disruptions to global supplies. Aside from the conflict between Lebanon and Israel, output cuts in Nigeria, Iran's refusal to halt its nuclear development program, and downed platforms and pipeline in the Gulf of Mexico, have also propped up energy prices this year. Until fighting erupted between Israel and Hezbollah, Iran was the focus of most energy trading. The U.N. Security Council demanded Iran cut its nuclear activities by the end of the month or get hit with sanctions, though Iran's U.N. ambassador flatly rejected the demand, declaring it illegal. Iranian officials have said they would still respond to a Western incentives package designed to persuade it to halt its nuclear program by late August. "Iran is a wild card," said John Thieroff, an energy analyst at Standard & Poor's in New York. Sky-high prices have boosted profits and revenues at a wide spectrum of energy companies, from the world's largest public oil company, ExxonMobil ( XOM), to small oilfield service providers. Last week, Exxon, Chevron ( CVX), BP ( BP), Royal Dutch Shell ( RDS-A) and ConocoPhillips ( COP) reported second-quarter earnings rose at least 18% thanks to fat refining margins and high oil prices. Lower domestic natural gas prices during the quarter were offset by soaring oil prices. But soaring oil prices haven't shaved domestic consumption of crude thus far, according to the latest report from the Energy Department. During May, demand hit a record 20.46 million barrels per day, up 1.6% year over year. And gasoline demand also hit a record for the month, rising 0.6% to an average of 9.31 million barrels per day