Crude rises on report that government will block all new drilling in the Gulf of Mexico

Oil climbs on report of Gulf drilling moratorium

Oil prices spiked Thursday after the federal government said it will stop all new drilling in the Gulf of Mexico following the worst crude spill in American history.

Benchmark crude for July delivery rose $1.75 to settle at $74.61 a barrel on the New York Mercantile Exchange.

An e-mail obtained by The Associated Press from the Gulf Coast office of the Minerals Management Service said that “until further notice” no new drilling will be allowed in the Gulf, at any water depth.

So far between 21 million and 46 million gallons of oil has spewed into the Gulf from the 6-week-old Gulf spill, according to government estimates.

Kendra Barkoff, a spokeswoman for Interior Secretary Ken Salazar, denied that the administration was placing a hold on shallow-water drilling.

A moratorium on new drilling would slow production in the Gulf, although it would not apply to existing wells. That could send crude prices higher, at least the short term, according to PGFBest analyst Phil Flynn.

“We’ve got to figure out what the rules are,” Flynn said.

The report comes as demand for crude products continues to improve. The Energy Information Administration reported that stocks of crude oil shrank by 1.9 million barrels last week and gasoline inventories fell by 2.6 million barrels. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., expected a smaller drop in oil stocks and forecast supplies of gasoline would increase.

Demand for crude products over the last four-week period is 8.1 percent higher than a year ago, including a 17.1 percent increase in distillates such as diesel fuel and heating oil.

Oil prices are down over 14 percent from $87 a month ago. The slide started with investor worries about European debt problems dragging down global demand for commodities.

The Environmental Protection Agency on Thursday issued a new standard for short-term exposure to sulfur dioxide, which comes mainly from coal-fired power plants and factories. Sulfur dioxide aggravates asthma and other breathing problems. Some power plants have been using more natural gas, instead of coal, to run generators because gas burns cleaner, with lower emissions.

Natural gas futures rose 26.6 cents to close at $4.690 per 1,000 cubic feet on the Nymex.

Retail gasoline prices dropped again Thursday, falling 0.7 cent to a national average of $2.716 per gallon, according to AAA, Wright Express and Oil Price Information Service. Prices have fallen 4.3 cents from a week ago and 18.8 cents over the past month as crude prices declined. Pump prices are 16.8 cents higher than a year ago.

In other Nymex trading in July contracts, heating oil rose 3.32 cents to settle at $2.0391 a gallon. Gasoline added 5.51 cents to settle at $2.0812 per gallon.

In London, Brent crude rose $1.66 to settle at $75.41 on the ICE futures exchange.

Associated Press writers Matthew Daily in Washington, Pablo Gorondi in Budapest and Alex Kennedy in Singapore contributed to this report.