Oil prices top $72 a barrel

WASHINGTON — Oil prices leapt above $72 a barrel Wednesday, setting a record for the third straight day and increasing the likelihood that pump prices will keep rising as summer nears.

The rally in oil futures was kicked off by a government report showing U.S. gasoline supplies shrank for the seventh straight week. That magnified market jitters about a nuclear dispute between Iran and the international community, as well as supply disruptions in Iraq, Nigeria and the Gulf of Mexico.

Even though retail gasoline prices already top $3 a gallon in some parts of the country, motorists are only lightly tapping the brakes on demand, according to government data.

But that could change in the months ahead if higher pump prices squeeze discretionary spending, particularly among low-income Americans, economists say.

Wal-Mart, the nation's largest retailer, warned Wednesday that it anticipated its least wealthy customers to spend less in 2006 because of higher fuel expenses. "As fuel prices go up, it dampens our store sales," said Tom Schoewe, the company's chief financial officer.

And American Airlines, the nation's largest carrier, blamed a $92 million first-quarter loss on higher jet-fuel prices, which the company said undermined increased ticket sales and higher fares.

While the U.S. economy is growing more slowly, it is not about to turn south, most analysts agree. But neither are oil prices, traders are betting.

Oil-futures contracts through July 2009 are now trading above $70 a barrel. "In effect, the market is saying this is going to be with us for a while," said A.G. Edwards & Sons commodity analyst Bill O'Grady.

On Wednesday, light sweet crude for May delivery climbed as high as $72.40 a barrel, before settling at $72.17 on the New York Mercantile Exchange, an increase of 82 cents from the previous day. The contract had risen as high as $71.60 on Tuesday.

In its weekly report, the U.S. Energy Department said the nation's supply of gasoline shrank by a larger-than-expected 5.4 million barrels last week to 202.5 million barrels, leaving inventories 4.6 percent below year ago levels.

Oil analyst John Kilduff of Fimat USA in New York said there would be a "painful run-up" in gasoline prices as summer approaches, and he said oil prices could rise as high as $80 a barrel by the end of June.

Crude-oil costs have risen about 38 percent in the past year.

But on an inflation-adjusted basis, they would have to rise above $90 a barrel to exceed the all-time highs set a quarter century ago when supplies became tight in the aftermath of a revolution in Iran and a war between Iraq and Iran.