Oil Prices Rise with Demand while Supplies Drop

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Oil Prices Rise with Demand while Supplies Drop

NEW YORK -- Friday was the fourth consecutive day that oil prices rose on the New York Mercantile Exchange, on expectations that the U.S. gasoline consumption will spark a demand for crude oil, Bloomberg News reported.

Gasoline prices have risen to an eight-month high following shutdowns at refineries that cut supplies at the dawn of the summer driving season. Oil prices also rose last week, after the International Energy Agency (IEA) reported that crude stockpiles in industrial nations could suffer the largest first-quarter drop in 11 years, the report stated. Crude oil for May delivery rose 30 cents, to $64.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

"Robust U.S. gasoline demand is driving oil prices," Victor Shum, senior principal at industry consultant Purvin & Gertz Inc. in Singapore, told Bloomberg News. "The market is also reacting to yesterday's bullish findings by the IEA.''

Already in 2007, gasoline prices have rose 20 percent, four times the increase in crude oil prices, the report stated. Meanwhile, U.S. stockpiles of gasoline have dropped for the past nine weeks to level off at 4 percent less than the five-year average.

In addition, refinery shutdowns are curbing gasoline supplies. Last week ConocoPhillips announced it shut a refining unit at its Wilmington refinery in California, Bloomberg News reported. Gasoline production in the U.S. fell 2.8 percent to 8.53 million barrels a day, the second week showing declines, the report stated.

Pump Prices
"Everybody is talking about $3 gasoline this summer,'' said Chris Mennis, owner of Aptos, Calif.-based oil broker New Wave Energy LLC.

The nationwide retail average for regular gasoline rose one cent to $2.805 a gallon last week, the report stated, citing data from U.S. motoring club AAA. Gasoline on the New York Mercantile Exchange also rose last week, reaching $2.20 a gallon on Friday.

"With the peak demand season less than two months away, the crude stockpiles will quickly disappear once those shut refiners are back up and running,'' said Purvin & Gertz's Shum.

In a separate Bloomberg News report, wholesale prices rose 1 percent, more than what was expected by analysts, due to higher energy costs, according to the Labor Department.

The percent gain followed a 1.3 percent increase in February. However, the core prices -- those that do not include food and fuel -- were unchanged after rising for the past four months, the department stated Friday.

The data shows that to date, companies are absorbing higher energy prices rather than passing them on to customers. However, rising fuel prices along with increases in labor costs -- which are approaching a six-year high -- could support the chance that inflation will speed up in the future, the report stated.

"This certainly doesn't let the Fed off the hook by any means,'' Gina Martin, an economist at Wachovia Corp. in Charlotte, N.C., told Bloomberg News. Inflation is "not accelerating, but it's not decelerating either. It's stubbornly staying high.''

Wholesale prices excluding food and fuel rose 1.7 percent from a year earlier, and were projected to increase 1.8 percent from March 2006, according to the survey median.

Energy prices rose 3.6 percent in March after increasing 3.5 percent the month prior. Gasoline prices rose 8.7 percent, the most since November, the report stated.

"Industries continue to suffer from significant cost pressures, but emerging slackness in many markets for final products will limit their ability to pass on effective price increases,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Mass.