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Oil rises above US$70 on Commerce Department report

OIL prices jumped above US$70 a barrel yesterday after the U.S. government said that the economy may be faring better than previously thought.

In a revised reading on gross domestic product in the first quarter, the Commerce Department reported a 5.5 percent annualized decline from January to March, rather than the 5.7 percent it reported a month ago.

The slowing economy has slashed demand for energy as factories shut down and fewer people drive to work or take leisure trips by car or plane. But it's thought to be shrinking at a slower pace this quarter, and refinery closures combined with ongoing political turmoil in oil producers Iran and Nigeria helped boost crude prices throughout the day.

Benchmark crude for August delivery added US$1.56 to settle at US$70.23 a barrel on the New York Mercantile Exchange. In London, Brent prices increased US$1.45 to settle at US$69.78 a barrel on the ICE Futures exchange.

The value of the dollar again is playing a strong role in the price of crude.

Crude prices have fallen off after peaking above US$73 a barrel earlier this month as the dollar strengthened. Most experts agree prices on Nymex, and at the local gas station, hit levels that weren't supported by meager demand for energy. They blame investment money that has flowed into the market, using oil as a hedge against inflation.

Stores of natural gas, a key energy source for power plants, also continued to build as manufacturers slowed production and major employers trimmed operations. The government reported yesterday that natural gas supplies rose again last week, though less than analysts expected.

In Nigeria, another round of attacks on oil industry infrastructure by local militants prompted analysts to reconsider their output estimates of Africa's biggest crude producer.

"We think that we are currently getting close to 1.3-1.4 million barrels a day," said Olivier Jakob of Petromatrix in Switzerland. "This compares to 1.9 million barrels a day in July 2008 and 1.8 million barrels a day" in the first quarter of this year.

In other Nymex trading, gasoline for July delivery rose 5.58 cents to settle at US$1.8983 a gallon and heating oil gained 3.82 cents to settle at US$1.7763 a gallon. Natural gas for July delivery advanced 8.3 cents to settle at US$3.844 per 1,000 cubic feet.


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