Oil prices hit record near $60 a barrel

U.S. gasoline prices average about $2.13 a gallon, an increase of more than 40 percent over the past two years.

Oil prices marched to new heights near $60 a barrel even as the president of OPEC said Monday the group will consider raising its output ceiling by half a million barrels as early as this week.

The Organization of Petroleum Exporting Countries raised its output target by that amount just last week. The move appeared to have little impact on prices, which have risen by almost $12 a barrel in the past month because of concerns about limited refining capacity and rising demand for gasoline and diesel.

Light sweet crude for July delivery climbed 90 cents to settle at $59.37 a barrel, a record close on the New York Mercantile Exchange, where oil futures have been traded since 1983.

U.S. gasoline prices average about $2.13 a gallon, an increase of more than 40 percent over the past two years, but government data released last week showed that demand is up almost 3 percent from a year ago over the past four weeks at nearly 9.5 million barrels a day -- a growth rate that surprised many analysts.

"The economy has accepted $50 oil. We accepted $2 gasoline too," said oil tycoon Boone Pickens, who runs a billion-dollar hedge fund that invests in energy commodities and equities.

"I think within a year from now, you're probably looking at $3 gasoline and you're probably looking at something over $60 for oil."

At Rhodes 101 service stations in Southeast Missouri, gasoline has been selling from $2.09 to $2.12 a gallon in recent days, said Jim Maurer, co-owner of the company which operates 24 convenience stores and service stations.

Maurer said the price his company pays for fuel jumped by 1.75 cents a gallon on Thursday, another 3.2 cents a gallon Friday and by 4.7 cents a gallon on Saturday.

"That is how crazy this market has been," he said. "I used to never see increases like this."

Said Maurer, "We have to pass it on to our customers."

Regardless of the price at the pump, he said his company makes a profit of only about 10 cents a gallon.

The increased gas prices lead some motorists to cut back on travel, Maurer believes.

"The high prices do us no good whatsoever," he said.

Increased OPEC production could help drive down oil prices at the pump, he said. But he said prices also are governed by demand. Gas prices tend to be higher in the summer when more people are traveling, he said.

While soaring jet fuel costs have been a major problem for the airline industry, higher energy prices have not taken as much of a toll on the broader economy as many analysts had previously feared. In the first three months of the year, the U.S. economy grew at a 3.5 percent annual rate, according to the Commerce Department, slightly slower than the 4.5 percent pace a year earlier.

The prospect of another attempt by OPEC to cool prices did not impress brokers, who said the effort could actually backfire by highlighting the group's dwindling excess production capacity.

Still, "it looks like we might have difficulty holding these levels," said Mike Fitzpatrick, an oil broker at Fimat USA in New York. "You're seeing a great deal of reluctance among buyers to pay these higher prices."

Oil analyst Andrew Lebow at Man Financial in New York said "once we're in this $55-$60 area, it's been kind of hard to justify. But it is what it is. It seems like we'll hit $60 at this point."

In London, Brent crude for August delivery settled 45 cents higher at $58.32 per barrel on the International Petroleum Exchange.

OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah said Monday that "if the prices continue to the end of this week at the same level, I will start consulting my colleagues to release the 500,000." Asked by reporters in Kuwait what he meant by the end of this week, the minister said Friday.

Last week the oil cartel agreed to raise its official production ceiling to 28 million barrels, starting July 1, but that failed to soothe traders because OPEC's output is already exceeding that level as producers seek to cash in on high prices. Including Iraq, which is not bound by the quota system, OPEC is pumping close to 30 million barrels a day, or about 35 percent of global demand.

Another development brokers were watching on Monday was the threat of a strike by oil workers in Norway, the world's third-largest exporter. A strike could begin as soon as Wednesday because of a salary dispute, potentially slicing the country's daily output of 3 million barrels by a third.

"If you take off 1 million barrels a day in this market, it's going to get ugly," said oil broker Tom Bentz of BNP Paribas Commodity Futures in New York. "Let's just hope it doesn't happen."

While Nymex oil futures are more than 56 percent higher than a year ago, they are still below the inflation-adjusted high above $90 a barrel set in 1980.

Analysts said unlike the record prices last year, which were driven largely by concern over geopolitical events in oil-producing countries such as Nigeria, Saudi Arabia, Iraq and Venezuela, this year's trend has more to do with speculative buying, continued supply fears and limited excess production capacity.

In other Nymex trading, gasoline futures fell less than a penny to $1.6456 per gallon, while heating oil futures rose a penny to $1.6618 per gallon.

Staff writer Mark Bliss contributed to this report.