Oil Rises Towards $68 on U.S. Refinery Troubles, Middle East Tensions

U.S. oil prices soared toward $68 a barrel Thursday on concerns over low fuel production from
hobbled U.S. oil refineries and a flare up of violence in the Middle East.

U.S. light sweet crude settled up $1.39 or 2.1% at $67.65 a barrel, the highest settlement since September 2006 and the biggest one-day gain since May 17. London Brent crude climbed , adding to Wednesday's gain of $1.15.

Natural gas prices spiked higher after the Energy Information Administration reported inventories rose 92 billion cubic feet in the latest week.

On Wednesday, the EIA's report on gasoline showed stockpiles failed to build as expected due in part to a slide in refinery activity and lower import levels. On Thursday, RBOB gasoline futures jumped 6.94 cents or 3.2% to settle at $2.2247 .

"The petroleum markets are still on the upswing, building on the Wednesday rally sparked by the bullish DOE report," said Tim Evans, analyst at Citigroup Futures Research.

U.S. gasoline supplies are running about 6% below a year ago following a prolonged stretch of refinery outages since winter, according to the report from the Energy Information Administration.

Heating oil stockpiles also have been falling, with supplies running about 35% below a year ago -- triggering an off-season rally in U.S. heating oil futures to their highest level since September 2006. Heating oil futures settled up 5.41 cents or 2.8% at $2.0161 .

Adding support to oil prices, Hamas fighters Thursday bombarded a major security compound belonging to the rival Fatah group in Gaza City as the Islamist movement appeared to
tighten its grip on the territory in fierce factional fighting.

The violence added to an already edgy market over supply disruptions in Nigeria and worries over Iran's atomic program.

European powers on Wednesday warned Tehran that it faced a possible third round of broader sanctions for expanding uranium enrichment and curbing U.N. inspectors' access.

Separately, Iranian President Mahmoud Ahmadinejad reiterated his defiance to the threat of further action, saying Iran "does not give the slightest value to your resolution."

In its monthly report on Thursday, OPEC said crude oil supply was sufficient for now, though the producer group stands ready to raise supply if needed to meet growing world demand.