Crude, Gasoline Stage Sharp Rebound

Oil futures clawed back some of the ground lost last week, pulled higher after heavy flooding and problems at a Mississippi refinery triggered a surge in gasoline prices.

The rally erases a sizable portion of last week's decline and raises the likelihood that U.S. drivers will soon be paying an average $4 a gallon at the pump.

Is $4 a gallon still out of the question? I don't know, but not if we have a couple more days like this," said Brian Milne, refined fuels editor for Telvent DTN.

Light, sweet crude for June delivery settled up $5.37, or 5.5%, to $102.55 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled up $6.77, or 6.2%, to $115.90 a barrel.

It didn't take much to lure buyers back into the oil market, after prices had plunged 15% last week to their lowest point since mid-March. Traders were convinced the worst of the declines were over, believing enough demand still exists for oil priced above $100 a barrel.

Gasoline futures saw an even bigger jump. Front-month reformulated gasoline blendstock, or RBOB, soared 18.83 cents, or 6.1%, to settle at $3.2784 a gallon.

The contract was lifted by concerns about reduced refinery production along the Mississippi River, where severe flooding is slowing barge traffic and sending the price of gasoline for delivery in the Midwest soaring.

Meanwhile, Chevron Corp. (CVX) said it extinguished a fire at one of its two crude units at its refinery in Pascagoula, Miss. A spokeswoman declined to comment on the status of the unit and operations at the 330,000-barrel-a-day refinery, but such problems often trigger supply concerns and send futures prices higher.

The rally likely scuttles hopes that consumers would get a reprieve from high gasoline prices ahead of the summer driving season. The average U.S. price of a gallon of regular gasoline Monday was $3.96, down from $3.98 Friday, according to the auto club AAA. Prices looked set to drop at the end of last week, once refiners passed along savings from cheaper oil prices to consumers.

But Monday's rally likely means that $4 gasoline nationwide--a level already breached in many parts of the country--is just around the corner.

Last week's decline was ignited by a series of disappointing economic readings for the U.S., the world's largest crude consumer. Much of the selling snowballed after crude prices tumbled through a series of "support levels" Thursday, used by investors as triggers for automatic orders to sell.

Despite last week's decline, little has changed in the oil market's demand outlook, analysts said. Moreover, Friday's better-than-expected U.S. jobs report for April suggested that the economy can sustain higher prices.

"Friday's jobs number was very pivotal with what's going on right now," said Matt Zeman, chief market strategist at Kingsview Financial. "I think you're seeing a relief rally."

June heating oil settled up 11.61 cents, or 4.1%, to $2.9618 a gallon.