Fadel Gheit, an oil analyst at Oppenheimer & Co., said there's no question that inflated energy prices could slow down an economic recovery. Given weak supply and demand fundamentals, he said, "oil should not be one penny higher than $50 a barrel."
Still, benchmark crude for July delivery rose $1.32 to settle at $71.33 a barrel in trading on the New York Mercantile Exchange after earlier touching $71.79. It was the second time in as many days that crude hit new heights this year at the close.
As the U.S. dollar has slid against other major currencies, crude prices have doubled largely from the influx of cash from Wall Street. Investors have used oil and other commodities as a hedge against a weak dollar and fears of inflation.
The most recent government reports show that investors who are not buying and selling oil for commercial purposes, such as airlines that hedge energy costs, have entered the market and are betting crude oil is going to rise.
Crude and gasoline held in U.S. storage facilities tumbled last week, the government reported Wednesday, as Americans took to the road for the summer driving season. That was a surprise to many investors who had expected crude levels to rise again. Oil prices at one point spiked to $71.79.
But the country is still flush with gasoline and oil, and it's the weak dollar that has driven crude prices higher for weeks.
"Nothing has changed in the real economy in terms of global demand to warrant this rise in prices," said Mahmoud El-Gamal, an economist at Rice University who specializes in energy issues.
Soaring oil prices helped push the U.S. trade deficit higher for a second straight month in April, the Commerce Department reported Wednesday.
Already, there are concerns that inflated energy prices, while far below last year, could slow an economic recovery with consumers already jittery.
The Energy Department's Energy Information Administration said Tuesday that crude prices will likely average $67 a barrel in the second half of 2009, about $16 higher than the first six months of the year. A month ago, the EIA's price-per-barrel forecast for the second half of 2009 was $55.
The EIA also predicted motorists will be paying $2.70 for a gallon of gas by July before prices level off.
The average national retail price for regular unleaded rose less than a penny overnight to $2.62 a gallon, according to auto club AAA, Wright Express and the Oil Price Information Service. That's up 40 cents in the past month but well below the $4.04 motorists were paying this time last year.
In other Nymex trading, gasoline rose by 4.86 cents to settle at $2.0153 a gallon while heating oil settled at $1.8326 a gallon - up 2.5 cents. Natural gas for July delivery fell 2.3 cents to $3.708 per 1,000 cubic feet.
In London, Brent prices rose in tandem with Nymex crude, gaining $1.18 to settle at $70.80 a barrel on the ICE Futures exchange.
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