Oil climbing on expectations of tighter supply

[July 16, 2011]  NEW YORK (AP) -- There are a few certainties when it comes to predicting oil prices. One of them is that the world will use more oil in coming years.

The question, analysts say, is whether major oil producers like Saudi Arabia, Canada, Venezuela and others, will be able to meet the demand.

Shortages of Libyan crude helped push up oil prices earlier this year to the highest levels since 2008. Those concerns resurfaced Friday, as Barclays Capital said Libya's oil industry will be disrupted for longer than expected. Its daily exports of 1.5 million barrels were shut down when an anti-government uprising swept the country. The conflict has turned into a stalemate, and Barclays says it will take years -- not months -- for Libya to restore exports to previous levels.

That means spare production capacity for Saudi Arabia and other major oil producers "will get eroded very quickly," Barclays analyst Helima Croft said. "In that event, the pressure on prices will be substantial" as supplies tighten.

On Friday benchmark West Texas Intermediate crude for August delivery rose $1.55 to settle at $97.24 per barrel on the New York Mercantile Exchange. Brent crude gained $1.00 to settle at $117.26 per barrel on the ICE Futures exchange.

Barclays' assessment adds to previous warnings by the International Energy Agency and the Energy Information Administration that world demand will outstrip supplies this year. Despite sluggish economic growth in the U.S. and Europe, experts say that oil demand from China and other emerging nations will drive global oil consumption for years to come.

Oil had its ups and downs this week, ranging from about $94 a barrel to nearly $100. Some of the volatility was caused by Fed Reserve Chairman Ben Bernanke's comments about the possibility of another round of stimulus spending. A new government stimulus program could weaken the dollar and raise oil prices. Oil is priced in dollars and tends to rise as the dollar falls against other currencies, making oil less expensive for buyers with foreign money.

Bernanke said another stimulus program is not imminent. But no matter what the Fed does, analysts say, it won't solve the expected supply issues that have been boosting oil futures this year.

Meanwhile, natural gas prices rose nearly 4 percent on a forecast for a "severe and prolonged" heat wave across the country. Accuweather meteorologist Bill Deger said temperatures will top the century mark in many areas over the next several days. "New York, Philadelphia and Washington could approach 100 degrees, with temperatures sure to feel much warmer than what the thermometer reads," Deger said. "At the very least, next weekend appears that it will be several degrees warmer and more humid than this one."

Natural gas demand usually goes up when temperatures rise and air conditioners kick in during the day. Many utilities rely on natural gas-fired generators to supply enough energy during those times of peak demand.

"They'll end up cranking up these turbines that use a lot of gas," Ron Denhardt, vice president of natural gas at Strategic Energy & Economic Research.

Natural gas rose 16.2 cents to settle at $4.520 per 1,000 cubic feet.

Gasoline pump prices added 1.2 cents Friday, rising to a national average of $3.667 per gallon. A gallon of regular is around 22 cents cheaper than it was last month, but it's still 95 cents higher than the same time last year and about 7 cents more than just a week ago.

In other Nymex trading for August contracts, heating oil picked up 3.31 cents to settle at $3.118 per gallon and gasoline futures gained less than a penny to settle at $3.1293 per gallon.

[Associated Press; By CHRIS KAHN]

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