Oil Prices Close Above $60 a Barrel

Oil prices closed above $60 a barrel for the first time ever Monday, a jump that threatens to send already-rising gasoline prices sharply higher over the Fourth of July holiday weekend.

U.S. light crude for August delivery rose to an intraday high of $60.95 a barrel in New York Mercantile Exchange trading before closing at $60.54, up 70 cents. Monday’s close eclipses record highs set on Thursday and Friday of last week.

Analysts blamed the most recent rise on fears that the newly elected hard-line government in Iran may crimp foreign investment in that country’s oil industry or, at a minimum, increase tensions between Iran and the United States over the Middle Eastern country’s nuclear program.

Traders also have been concerned that crude supplies, although adequate now, may be tight later in the year.

“It’s been the same story every day,” said Michael Armbruster, co-founder of Altavest Worldwide Trading Inc. “We’ve had [oil] inventories generally rising, but everybody’s worried about fourth-quarter demand.”

In California, meanwhile, the average cost of gasoline shot up 6 cents in the last week to $2.412 for a gallon of self-serve regular, the Energy Information Administration, an arm of the Energy Department, reported Monday in its weekly pricing survey.

Across the country, the average pump price rose to $2.215 a gallon, up 5.4 cents, the survey said.

With oil prices so high, retail gasoline prices nationwide probably will surpass April’s record highs to set another record, possibly as soon as July, said Ben Brockwell, editor in chief of the Oil Price Information Service, a trade publication that tracks oil and fuel prices.

In Nymex trading Monday, gasoline for July delivery surged 2.5 cents a gallon to $1.68.

On the Los Angeles spot market, gasoline traded at $1.92 a gallon, a price that does not include taxes or transportation costs of about 60 cents a gallon, according to the Oil Price Information Service. That spot price, usually an indicator for future retail prices, suggests that pump prices could soon increase above $2.50 a gallon.

For motorists, Brockwell said, “it’s going to be an expensive Fourth of July -- again.”

Armbruster and other analysts see little hope in the near future for lower oil prices and, thus, little hope for lower gasoline prices. In this market, he said, “I could see people in California paying $4 a gallon as easily as $2.50 a gallon.”

As for plowing through the $60-a-barrel milestone, Amy Myers Jaffe, energy fellow at Rice University’s Baker Institute, said such price markers had become “just another $10.”

“We’re operating off this very thin base of everything -- oil production and refining capacity,” she said. “And every time we move up another level [in price], people gasp, then the market seems to adjust to it.”

In May 2004, crude oil futures traded on the Nymex broke through the $40 barrier, then surpassed $50 per barrel for the first time in October. Adjusted for inflation, all of those benchmark highs, including Monday’s close of $60.54 a barrel, are still below the highs hit in the early 1980s.

There was little doubt that the $60 mark would be reached, because the market was “just looking for some reason to be at $60, and this weekend it found it with the Iranian election,” said Roger Diwan, managing director of oil markets for PFC Energy, a Washington consulting firm. “It brought geopolitics back into the market’s fundamentals.”

The fundamentals of oil, however, offer a bleak enough picture: Worldwide crude oil production is barely keeping pace with rocketing demand, and there is little or no idle capacity that can be quickly tapped if demand continues to soar, or if there are any disruptions in the current flow of supplies.

“The bottom line is that we do have a very tight, precarious balance in the oil market today, and that’s reflected in the price,” said Daniel Yergin, chairman of the consulting firm Cambridge Energy Research Associates.

Traders continue to price oil as if it will remain north of $55 a barrel for the foreseeable future.

Contracts to purchase oil in August and for every month through February 2007 are trading above $60 a barrel, while oil futures for March 2007 and beyond cost more than $55 a barrel, according to the Nymex.

Futures to buy oil in December 2011 were priced Monday at $56.39 a barrel.

Said Armbruster, the analyst: “What it’s telling us is that high [oil] prices are likely to be here for some time to come.”