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Oil jumps above $72 to new high
Supplies of crude post surprise decline, gasoline chalks up big shortfall as summer driving season gets underway.
By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Oil prices jumped above $72 a barrel to yet another record Wednesday after a government report said supplies of crude made a surprise decline and gasoline stocks fell far more than expected.

U.S. light crude for May delivery soared as high as $72.40 a barrel, a new intraday high, before easing to settle up 82 cents at $72.17 a barrel on the New York Mercantile Exchange, which is also a new closing high. Crude set record trading and closing highs Tuesday as well.

Oil was off 45 cents just before the government report, and swung higher and then back down after the report's release.

The Energy Department said in its weekly inventory report that supplies of gasoline fell 5.4 million barrels last week. Analysts had predicted a decline of 2.5 million barrels, according to Reuters.

Distillates stocks, from which heating oil and diesel fuel are made, sank 2.8 million barrels while crude supplies fell by 0.8 million barrels. Analysts were looking for a 1.6 million barrel drop in distillate supplies and a 1.8 million build in crude stocks.

"This is just continuing the concern over stockpiles going into the summer driving season," said Brian Hicks, co-manager of the Global Resource Fund at Global Investors. "We think it's going to be supportive of prices in the short term."

Oil has been hitting record highs in recent sessions, unadjusted for inflation, on supply worries fed by fears of a confrontation with Iran, the world's fourth-biggest producer. But it's also within sight of inflation-adjusted highs of around $80 a barrel set in the late 1970s and early 1980s following the gas crisis and the Iranian revolution.

Gasoline supplies have been watched especially closely the last few weeks as the U.S. gears up for summer driving season.

In addition to soaring crude, growing demand and problems at refineries - including lingering effects from last season's hurricanes and a switch to less polluting gasoline - have contributed to rising prices at the pump.

Gasoline averaged $2.80 for a gallon of regular Wednesday, up 29 cents, or 12 percent, in the last month, according to AAA, the consumer group formerly known as the American Automobile Association.

Gas prices closely follow crude prices, which have jumped about 13 percent this year, mainly on political uncertainty or violence in Iran, Nigeria, Venezuela and Russia - all major producers. Oil prices soared 45 percent in 2005.

Iran has been at the forefront in recent weeks as it tangles with the West over its nuclear program.

On Tuesday, the United States failed to secure international support for targeted sanctions against Iran and President Bush refused to rule out nuclear strikes if diplomacy failed to curb the country's atomic program.

Tehran has vowed to continue its pursuit of nuclear technology and warned Tuesday that the Iranian army would defend any attack on the country.

Iran says its nuclear program is intended for civilian purposes, while many western countries say its intended to build a bomb.

The situation in Nigeria is also pushing up prices, as nearly one quarter of the country's high-quality crude is shut in due to tensions with militants, who want more control over how the country's oil wealth is dispensed.

The International Monetary Fund said high oil prices could begin hurting world economic growth and called on the U.S., which uses a quarter of total world production, to raise taxes in a bid to reduce demand, Reuters reported.

Reuters also said OPEC ministers will meet next week informally to discuss prices, but said there is little the cartel, already pumping at near full capacity, can do to ease the situation.

But politics is only part of the story with crude prices. Oil has been on a charge for the last few years, more than tripling in price since the start of 2002.

Big fund money, faced with low global interest rates and a lackluster U.S. stock market, have helped fuel the rise as they chase returns in all types of commodities, including oil.

And fundamental supply and demand has also played a big part as discoveries of new, easily recoverable supplies have failed to keep pace with ever rising demand from the U.S. and developing countries like China and India.

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Senator calls for gasoline price-fix probe. Click here

Oil, rising rates could spoil the party. Click here Top of page

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