Oil prices rose more than a dollar on Tuesday on worries that US gasoline supplies may grow tight ahead of the coming driving season, and amid deeper supply disruptions in Nigeria.
US crude rose $1.18 to $62.95 a barrel, up nearly $3 since last week, while London Brent rose $1.49 to $63.69 a barrel. US gasoline futures shot up 7 percent to a 5-month high of $1.87 a gallon.
The US oil industry is phasing out gasoline-additive MTBE, banned in several sates for polluting water, and energy experts believe the shift could shrink fuel inventories and trigger regional disruptions.
"This is being driven by gasoline," said Bill O'Grady, an oil analyst at A.G. Edwards. "People are always bullish on gasoline in the run-up to summer driving season, but this year there is even more reason because of the specification changes."
The head of Valero, the largest refiner in the United States, said on Tuesday he expects the removal of MTBE to tighten stockpiles of gasoline this summer, potentially boosting prices.
US gasoline supplies are currently running well-above average for this time of the year, but could draw down quickly, analysts caution.
Adding to US gasoline worries, Hovensa LLC said it shut a gasoline-making unit at its refinery in St. Croix, US Virgin Islands, a major source of gasoline to the US East Coast. The shutdown adds to already-slow production from refiners undergoing seasonal maintenance.
In Nigeria, militant attacks have forced the Opec-member to shut in a total 556,000 barrels per day of crude, an upward adjustment of nearly 100,000 bpd since violence flared last month, the country's top oil official Edmund Daukoru said.
That countered any bearishness from the International Energy Agency's report forecasting a 290,000 bpd slowdown in 2006 global demand growth due to high energy prices.
"While there is reason to expect prices to soften if everything runs smoothly, the reality is that limited spare capacity and a bumpy road ahead are likely to support prices for some time," the IEA said in the editorial of its monthly report.
The rebound in oil prices reverses a slide of nearly $4 last week after the Organisation of Petroleum Exporting Countries vowed to keep pumping flat-out despite US stocks reaching their highest levels since May 1999.
Opec President Edmund Daukoru said on Tuesday the cartel wanted to keep US crude between the upper $50s to lower $60s.
US President George W. Bush stoked the fire on Monday by accusing Iran of helping to foment violence in neighbouring Iraq, just as the UN Security Council considers a tough approach to reining in Iran's nuclear ambitions.
The United States, Britain and France will brief all 15 members of the Council later on Tuesday, pushing for a statement that would call on Iran to stop all uranium enrichment-related activities, which they believe are linked to weapons-making.
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