NEW YORK - Crude oil futures settled at $68 a barrel on Friday, their highest close since September, while gasoline futures extended their rally, raising the prospect that prices at the pump will stabilize and possibly even rise after falling for several weeks.
Analysts say oil prices were boosted by unrest in the Middle East and a lower-than-expected core inflation figure, which encouraged investors to move money from fixed income investments to commodities. But oil futures also followed the lead of gas futures, said James Cordier, president of Liberty Trading Group, in Tampa, Fla.
Gas futures have risen several days this week after a government report Wednesday that shocked traders by showing gasoline inventories remained flat as refineries used less of their capacity than they had the week before.
The report was bullish for gasoline, but not for oil, which has been "trading in sympathy" with gas, Cordier said. That's because the refinery outages that are crimping gasoline supplies serve as a bottleneck for oil, which backs up behind the facilities waiting to be processed, he explained. Cordier thinks oil can't sustain a price this high, and should ease next week.
Light, sweet crude rose 35 cents to settle at $68 a barrel on the New York Mercantile Exchange. Brent crude for August delivery rose 15 cents to settle at $73.98 a barrel on London's ICE Futures exchange.
Meanwhile, retail gasoline prices, which typically lag the futures market, fell again by 1.4 cents overnight to a national average price of $3.029 a gallon, according to AAA and the Oil Price Information Service. Prices peaked at $3.227 a gallon on May 24.
"Unfortunately, I think this is about as good as it gets," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service, predicting a higher price in the near future.
Gasoline futures for July jumped 3.54 cents to settle at $2.2601 a gallon on the Nymex.
Also on the Nymex, heating oil futures fell 0.55 cents to settle at $2.0106 a gallon while natural gas prices added 11 cents to settle at $7.918 per 1,000 cubic feet.
Analysts said traders continued to react to Wednesday's report by the Energy Department's Energy Information Administration.
"The report we got this week ... that was just incredibly disappointing and extremely bullish," Cordier said.
The report showed that refinery utilization, which had been expected to grow by 0.8 percent, fell 0.4 percent to 89.2 percent, the second straight weekly decline, in the week ended June 8. Most analysts say refineries should be using 94 percent to 95 percent of their capacity at this time of year.
The report also showed gasoline inventories unchanged at 201.5 million barrels last week. Analysts surveyed by Dow Jones Newswires had expected inventories to rise by 2 million barrels.
The report killed any sentiment that the domestic refining industry, beset by an unusual number of outages this spring, has recovered. Analysts have warned for months that the industry is not producing enough gasoline to meet summer driving demand, which typically peaks between the July 4 and Labor Day holidays.
On Friday there were new reports that Corpus Christi, Texas, refineries owned by Valero Energy Corp. and Flint Hills Resources were temporarily shutting down equipment for maintenance.
"We needed some big builds (in gas inventories)," said Cordier. "We got one or two big builds, then this figure just threw cold water on it."
The report attracted hedge funds and technical buying, analysts said, further adding to the price increases.
Kloza doubts the rally will continue much longer. He thinks futures will trade in a defined range of a few dollars for oil, and 10 to 20 cents for gasoline, rather than breaking out to new highs.
"I do not believe this is the beginning of another tremendous bounce," Kloza said.
Retail gas will follow suit, he said: It won't fall any further, but it also won't jump back to late May's records.
Unrest in the Middle East, where Hamas consolidated its control of Gaza,also supported oil prices. Though it is not a large oil-producing area, strife in Israel and the Palestinian territories unsettles oil traders because of the possibility an oil-producing country, such as Iran, could be drawn in.
"Geopolitics will rally a market at the end of the week every time," Cordier said.
Cordier said energy futures prices were also supported by Friday's core inflation figure, which a government report said rose a lower-than-expected 0.1 percent. That dampened sentiment the Federal Reserve will raise interest rates. Investors flee equity and commodities markets for fixed income investments when interest rates are believed to be on their way up, Cordier explained. When investors think rates will hold steady or fall, they're more likely to invest in commodities, he said.
"It relieves downward pressure on commodities," Cordier said. "The core figure on inflation today kind of took the cap off the market."