Oil surges on offshore drilling report

AP News
Posted: Jan 11, 2011 3:21 PM
Oil surges on offshore drilling report

Oil prices surged Tuesday after a presidential panel investigating the Gulf oil spill said the oil industry and the government need to do more to reduce the chances of another large-scale disaster.

Benchmark oil for February delivery rose $1.86, or more than 2 percent, to settle at $91.11 a barrel on the New York Mercantile Exchange.

The panel's recommendations included increasing the liability cap for damages when companies drill offshore; increasing budgets and training for the federal agency that regulates offshore drilling and lending more weight to federal scientific opinions in decisions about drilling.

The report raised speculation that the government might slow down production in the Gulf of Mexico, which would lead to higher prices. "As it stands right now, this is a little bit of a concern in the oil patch," PFGBest analyst Phil Flynn said.

Meanwhile, gasoline pump prices continued to climb, hitting a national average of $3.09 for a gallon of regular, according to AAA, Wright Express and the Oil Price Information Service. That's almost 2 cents more than a week ago and about 34 cents more than a year ago.

Oil prices also got a boost from another blast of cold and snow headed into the Northeast. Winter storm warnings were posted as the third snowstorm in less than three weeks took aim at the New York City area. Prices rose for heating oil, which is used mostly in the Northeast to warm older homes and commercial buildings. The price of heating oil has risen almost 5 percent this week.

Oil prices also got support from Japan's promise to buy bonds to help finance Europe's bailout fund. The money from the sale will be used as part of an international bailout of Ireland, even as speculation lingers that Portugal and perhaps even Spain may be forced to seek help with financial problems.

"Every time we get a sign that the market is going to bail out Europe, it's always been bullish for oil," Flynn said.

In its short-term energy outlook issued Tuesday, the Energy Department forecast oil prices will average $93 a barrel this year, which would be $14 more than the average price in 2010.

Retail gasoline prices are forecast to average $3.17 per gallon for the year, an increase of 39 cents per gallon from last year. The Energy Information Administration says there is a slim chance the price could top $4 a gallon by summer's end.

The EIA predicted the average household heating cost will be $990 this winter, which would be $22 more than 2010. Higher costs were expected for heating oil and propane, with costs unchanged for natural gas and lower for electricity.

EIA updates its short-term outlook every month.

In other Nymex trading in February energy contracts, heating oil rose 5.27 cents to settle at $2.6088 a gallon, and gasoline futures gained 2.41 cents to settle at $2.4784 per gallon. February natural gas futures added 8.2 cents to settle at $4.481 per 1,000 cubic feet.

In London, Brent crude rose $1.91 to settle at $97.61 a barrel on the ICE Futures exchange.


Associated Press writers Pablo Gorondi in Hungary and Alex Kennedy in Singapore contributed to this report.