Oil futures settled at a record high above $78 Tuesday on expectations that crude inventories fell last week and reports of new violence in Nigeria, a large oil producer and key supplier to the U.S.
Investors believe Wednesday's inventory report by the Energy Department's Energy Information Administration will show that refiners drew down oil inventories as they continued to increase gasoline production last week, analysts said.
News that a Nigerian construction worker was kidnapped Tuesday added to the bullish tone of a market that seemed determined to test last year's record highs, analysts said.
"They want to get back to $78.40," the intraday price record set July 14, 2006, said Jack Hunter, an energy trader at FC Stone Group in Kansas City.
Light, sweet crude for September (delayed) delivery gained $1.38 to settle at $78.21 a barrel on the New York Mercantile Exchange. That puts futures within striking distance of the intraday record, and beat the settlement price record of $77.03 set the same day.
Oil's advance helped pull other energy futures higher. But news that Total PetroChemicals USA Inc. is reducing output at a Texas refinery to perform maintenance gave investors a rare additional reason to buy gasoline futures.
The August gasoline contract , which expired after the close of trading, rose 5.52 cents to settle at $2.1408 on the Nymex. Expiring futures contracts are often subject to volatile swings as investors square positions. The September contract, which now assumes front-month status, rose 4.67 cents to settle at $2.1059 a gallon.
At the pump, meanwhile, the average national price of a gallon of gas fell 1.4 cents overnight to $2.876, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May. Futures at that point were rallying on concerns that refiners were not making enough gas to meet summer driving demand.
"The gasoline market now appears amply supplied with the end of the heavy driving season only about a month away," wrote Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill., in a research note.
That's part of the reason gasoline futures have fallen nearly 29 cents over the last two weeks.
In other Nymex trading, heating oil futures rose 3.49 cents to settle at $2.10 a gallon and natural gas futures fell 30.8 cents to settle at $6.191 per 1,000 cubic feet.