Oil Prices End 2006 Where They Started

Oil prices settled above $61 a barrel Friday to finish 2006 roughly where they began, marking another tough year for energy consumers and another stellar one for the petroleum industry.

It was the fifth straight year in which oil prices were higher than the year before, on average.

Many analysts are looking for crude-oil futures next year to average more than $60 a barrel because of robust demand growth in Asia and the Middle East, efforts by OPEC to trim supply and market-rattling instability in energy-rich countries such as Nigeria and Iraq.

But slower economic growth in the U.S. and a production spurt from non-OPEC countries should keep prices below the 2006 average of roughly $66 a barrel, analysts said. And with expectations of fewer refining bottlenecks, gasoline and other fuels should be less expensive - though not cheap when compared with costs from just a few years ago.

"There will be an easing of conditions, but not a dramatic reversal," said Antoine Halff, an analyst at New York-based Fimat, who cautioned that supply disruptions - whether the result of hurricanes or geopolitics - have the potential to cause short-term spikes.

"Nigeria looks increasingly unstable," Halff said, adding that internal politics in Iraq could hamper that country's all-important oil sector, too. The other country to keep an eye on is Iran, whose nuclear ambitions recently prompted United Nations sanctions.

The average retail price of gasoline in the U.S. ended the year at around $2.34 a gallon, or 14 cents higher than a year ago. Analysts say the $3 level could be within reach in some parts of the country next summer, but that prices in 2007 should mainly be lower than in 2006, when they averaged $2.38 a gallon nationwide.

Oil Price Information Service analyst Tom Kloza said he expects the cost at the pump for the eastern two-thirds of the country to rise to $2.50-$2.80 a gallon ahead of summer, the peak demand period. Motorists out West will, as usual, pay even more, he added.

Kloza said "petronoia," or fears about supply disruptions, should drive the retail price of gasoline to $3-a-gallon and more in California, Nevada, Oregon and Washington.

On Friday, light sweet crude for January delivery rose 52 cents to settle at $61.05 a barrel on the New York Mercantile Exchange, up a penny from where they ended last year.

Nymex oil futures peaked at $78.40 on July 14, but averaged $66.25 for the year, compared with $56.70 in 2005 and $41.47 in 2004.

The price of natural gas plummeted by almost 41 percent from start to finish in 2006 thanks in large part to mild weather and bulging U.S. inventories, but remained high by historical standards. For the year, natural gas futures averaged $6.98 per 1,000 cubic feet, or 23 percent below the 2005 average of $9.01.

Natural gas futures settled Friday at $6.299 per 1,000 cubic feet, an increase of 5.1 cents. In other Nymex trading, heating oil futures declined by 2.52 cents to settle at $1.5979 a gallon, while unleaded gasoline futures fell 4.02 cents to settle at $1.5419.

The high price of oil and natural gas throughout 2006 was a boon to major oil companies such as Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, who are expected to earn more than $70 billion combined, according to analysts surveyed by Thomson Financial. In 2005, the same three companies raked in just under $64 billion.

Their soaring profits and stock prices again caught the attention of Congress, which will be controlled by Democrats next year for the first time in more than a decade.

A price below $60 a barrel would actually be welcome news to energy-intensive industries, particularly airlines, which have retooled their operations to use fuel more efficiently but are still struggling to maintain profitability.

Global oil demand is expected to rise by 1.5 million barrels a day to 86 million barrels a day in 2007, according to the Paris-based International Energy Agency. But this increased consumption shouldn't burden the market too badly, analysts say, because supplies from non-OPEC countries in Africa, Latin America and the former Soviet Union are anticipated to rise by nearly that much.

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