BUDAPEST, Hungary - Oil prices rose briefly to $66 a barrel Thursday on concerns about gasoline supplies.
With inventory levels down, "gasoline will remain a key concern over the coming weeks," said Orrin Middleton, energy analyst at Barclays Capital in London.
The U.S. inventories report Wednesday showed a decline in gasoline stocks, triggering heightened concerns that a string of refinery shutdowns in the U.S. will make it difficult for gasoline supplies to meet peak summer demand.
Market sentiment was cooled by a report from the International Energy Agency forecasting slower global oil demand growth in 2005.
The Paris-based agency said in its monthly report Thursday that oil demand this year will be 150,000 barrels a day less then it expected, as China's oil demand continues to show signs of weakening.
Nevertheless, world oil demand will grow this year by 1.6 million barrels a day to 83.7 million barrels a day, IEA said.
After climbing as high as $66 a barrel, light sweet crude for September delivery retreated to $65.45 a barrel, an increase of 55 cents in afternoon trade on the New York Mercantile Exchange.
Gasoline futures surged more than 5 cents to $1.948 a gallon, while heating oil also rose more than a nickel to $1.8910 a gallon.
Brent crude for September delivery gained 40 cents to $64.39 on London's International Petroleum Exchange.
Traders were awaiting natural gas inventories from the U.S., due out later Thursday, with speculation that a drawdown in stocks would send heating oil prices higher and would feed through to crude prices.
The IEA also warned that despite a rapid build in oil inventories during the first half of 2005, more stocks are needed.
"Stocks have built rapidly in the first half of 2005, despite $60 oil, but clearly, the market verdict remains more inventories are needed until investment responses catch up and demand patterns are clearer," the agency said.
Crude futures have risen 14 percent in the last three weeks, driven by an array of concerns about supply disruptions: U.S. and Venezuelan refinery outages; the Atlantic hurricane season's impact on production in the Gulf of Mexico; the death of Saudi Arabia's King Fahd; and tensions over Iran's nuclear program.
"Hedge funds continue to roll over their large energy investments from September to October, and many are predicting prices of $65 to $70 per barrel as they take more length," said Energyintel analyst George Orwel in a research note.
While oil prices are almost 50 percent higher than a year ago, they would need to surpass $90 a barrel to exceed the inflation-adjusted peak set in 1980.
The weekly U.S. petroleum supply snapshot on Wednesday showed a drop in gasoline stocks by 2.1 million barrels to 203.1 million barrels, likely the result of at least seven U.S. refinery outages in less than three weeks. It was sixth decline in a row for gasoline inventories.
Energy markets have been extremely jumpy about the refinery outages. Some traders said the troubles - the latest reported at BP PLC's plant in Texas City on Wednesday - is evidence that the industry and its aging infrastructure are having difficulty maintaining output at high levels.
But analysts and industry officials said refinery snags are not out of the ordinary for this time of year, when plants run hard to meet peak gasoline demand.
Meanwhile, markets remained concerned over Iran's decision to resume some of its nuclear activities and the international diplomatic tensions the move triggered.
Diplomats at the International Atomic Energy Agency, the U.N. nuclear watchdog, were debating a draft resolution Thursday that expressed "serious concern" over Iran's resumption of uranium conversion but left open the possibility of more talks on the crisis.
Iran says its nuclear program is entirely peaceful. But the United States and others fear Iran could use its program to build bombs - concerns fueled by past revelations that Iran concealed 18 years of nuclear activities, including uranium enrichment.
Associated Press Writer Gillian Wong in Singapore contributed to this report.
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