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Oil hits record on lower US supply

First-time blood donor Amanda Lopez of Las Cruces, N.M., takes advantage of a United Blood Services offer of a 5-gallon gas voucher for a pint of blood to the first 20 people to sign up. First-time blood donor Amanda Lopez of Las Cruces, N.M., takes advantage of a United Blood Services offer of a 5-gallon gas voucher for a pint of blood to the first 20 people to sign up. (Shari Vialpando/Associated Press/Las Cruces Sun-News)
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Associated Press / July 3, 2008

NEW YORK - Oil prices shot to a record above $144 a barrel yesterday as the government reported a bigger-than-expected drop in US supplies and the threat of conflict with Iran weighed on traders' minds.

The latest spike means a barrel of crude has gone up about half since the end of last year, when oil was going for $96. Retail gasoline prices climbed to a record of their own in the United States at a fraction over $4.09.

Light, sweet crude for August delivery rose as high as $144.32 on the New York Mercantile Exchange shortly after the regular trading session ended. The contract also set a closing record at $143.57, $2.60 above the previous high a day earlier.

The Energy Department's Energy Information Administration said crude oil supplies fell 2 million barrels last week, or about 800,000 barrels more than analysts surveyed by the energy research firm Platts predicted.

However, the report offered a mixed picture of energy use by the world's thirstiest oil consumer. Gasoline supplies unexpectedly grew by a considerable amount, and demand continued to slide - suggesting that record fuel prices are prompting a real shift in Americans' driving habits.

Even so, gas prices continue to rise along with the soaring cost of oil. Prices at the pump jumped half a penny, according to AAA, the Oil Price Information Service, and Wright Express.

The inventory report was only one factor in yesterday's rally.

"It's a combination of things," Phil Flynn, analyst at Alaron Trading Corp. in Chicago, said of the run-up. "People are buying oil because they're worried about tight supplies, the weak dollar, war breaking out in Iran. It doesn't look like any of this stuff is going to settle down any time soon."

Ongoing rhetoric about possible attacks on Iran, the world's fourth-largest oil producer and OPEC's second-largest exporter, left the market jittery.

Traders are worried Tehran could try to halt shipments and seize control of the strategically important Strait of Hormuz if attacked by Israel or the United States. About 40 percent of the world's tanker traffic passes through the Middle Eastern choke-point.

US oil markets are closed tomorrow.

In other Nymex trading, heating oil futures rose 12.8 cents to settle at $4.0715 a gallon. Gasoline futures rose 3.6 cents to settle at $3.5494 a gallon. Natural gas futures fell 11.6 cents to finish at $13.389 per 1,000 cubic feet.

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