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Oil prices settle above $86 on improving economy

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[May 01, 2010]  NEW YORK (AP) -- Oil prices climbed above $86 Friday as the government reported the economy expanded in the first quarter and on growing concern that an oil spill in the Gulf of Mexico will affect supply.

Oil rose 98 cents to settle at $86.15 per barrel on the New York Mercantile Exchange. Crude has moved between $81 and $87 this month as traders weighed the improving global economy against stubbornly high U.S. oil inventories.

On Friday the Commerce Department said the nation's economy grew by 3.2 percent from January to March. Consumer spending showed the best improvement in three years. That's good news for the oil and gas industry, which has seen demand for energy tank with the economy. As the economy picks up steam, factories and businesses should use more power and consumers more gasoline.

The disadvantage for the energy sector Friday continued to be the huge oil spill in the Gulf of Mexico. About 5,000 barrels of oil per day are leaking from the seabed where the drill ship Deepwater Horizon exploded and sank. A giant slick is beginning to wash ashore along the Gulf Coast.


On Friday President Barack Obama said he'd ordered the interior secretary to see whether new safety procedures are needed before new offshore drilling leases can go forward.

JP Morgan analysts wrote in a note to investors that the spill raises worries about supply. "Given the rich concentration of both offshore upstream assets and refining and petrochemical plants along the Gulf Coast, markets are increasingly concerned about the potential for restriction of vessel movements to tighten crude and product markets."

Traffic through the Southwest Pass, the main deep water shipping lane in the area, has not been restricted yet. It appeared that the Louisiana Offshore Oil Port, or LOOP, a key facility for offloading tankers delivering U.S. oil imports, would not be affected, according to analyst Olivier Jakob of Petromatrix.

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"Ultimately, if there are any disruptions to crude oil imports, the Strategic Petroleum Reserves will be released," Jakob said.

The SPR totaled 726 million barrels in December, according to the Department of Energy. That is around 75 days of oil imports.

Retail gasoline prices rose 0.4 cent per gallon overnight to a national average of $2.881, according to AAA, Wright Express and Oil Price Information Service. That's 3 cents higher than a week ago and 83 cents higher than a year ago.

In other Nymex trading in May contracts, heating oil rose 3.73 cents to settle at $2.2888 a gallon, and gasoline gained 4.07 cents to settle at $2.3963 a gallon. Natural gas lost 6 cents to settle at $3.920 per 1,000 cubic feet.

In London, Brent crude rose 54 cents to settle at $87.44 per barrel on the ICE futures exchange.

[Associated Press]

Associated Press writers Pablo Gorondi and Alex Kennedy contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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