By JOHN WILEN, AP Business Writer
Oil prices pushed above $66 a barrel Friday after Saudi Arabia announced the arrests of 172 Islamic militants, some of whom planned to attack oil fields.
Traders didn't initially react to the news, analysts said. But then they started thinking.
"The concern is that we know al-Qaida's number one priority is to hit an oil field in Saudi Arabia," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "They're just not going to quit."
Light, sweet crude for June delivery rose sharply after vacillating between gains and losses this morning. It settled up $1.40 at $66.46 a barrel on the New York Mercantile Exchange.
Brent crude settled 76 cents higher at $68.41 a barrel on the ICE Futures exchange in London.
Gasoline futures settled up 7.1 cents on the Nymex at $2.3613 after falling earlier.
Some of the arrested militants had planned to use airplanes to attack Saudi oil fields, an Interior Ministry spokesman said Friday. Other attacks were planned on public figures and refineries.
"The market really didn't respond to (the Saudi arrests)," for the first half hour after the news was reported, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill. "The initial response almost looked a little bearish."
While news of the arrests was contributing to the afternoon rally, Ritterbusch thinks traders remain more focused on Wednesday's Energy Department inventory report.
Prices rallied Wednesday after an Energy Department report showed a large, unexpected drop in U.S. gasoline stockpiles of 2.8 million barrels last week — when analysts had expected a gain of 200,000 barrels. The report also said U.S. refinery use declined 2.6 percentage points to 87.8 percent of capacity.
"Refinery capacity this last week was very disappointing," said James Cordier, president of Liberty Trading Group in Tampa, Fla. "The gasoline inventory's very scary."
Continuing refinery problems — including a brief fire at Marathon Oil Corp.'s Garyville, La., refinery on Thursday and reports of temporary shutdowns or delayed starts at other facilities — is contributing to the supply concerns. With the start of the summer driving season about a month away, some analysts wonder whether gasoline supplies will be adequate to meet demand.
"Concerns about U.S. gasoline supply are underpinning the crude oil futures market," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "It seems U.S. refineries have had a lot of bad luck recently. And U.S. gasoline inventories are at a historic low. It's going to be a tight situation."
But the Commerce Department's report this morning that economic growth slowed to 1.3 percent in the first quarter has spooked some traders, who worry tepid growth means consumers will use less fuel.
"(That was) a very weak economic number this morning," Cordier said.
And a possible improvement in the tense situation in Iran also gave the market a reason to depress prices. Iran's top nuclear negotiator said talks with a senior European Union official had brought them closer to a united view of how to break a deadlock over a U.N. Security Council demand that Tehran freeze its uranium enrichment program.
The upbeat comments by Ali Larijani boosted hopes that he and Javier Solana, the European Union's top foreign policy official, had chipped away at differences over enrichment — a potential pathway to nuclear arms — in two days of talks.
"The statement took some heat out of the market," said Vienna's PVM Oil Associates. "Furthermore, healthy U.S. crude inventories ... (were) probably another easing factor."
"If that actually develops with diplomacy and so on, there's about $4 to $6 of geopolitical premium built into (the price of)crude oil right now," Cordier said.
In other Nymex trading, heating oil futures settled 2.44 cents higher at $1.9135 a gallon, while natural gas prices rose 22.9 cents to settle at $7.831 per 1,000 cubic feet.
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