Light, sweet crude for August delivery rose $1.11 to settle at $70.68 a barrel on the New York Mercantile Exchange after rising as high as $71.06 earlier in the session. Oil last closed above $70 a barrel on Aug. 31.
Analysts have predicted for weeks that retail gas prices are bound to stop falling, and could even rise again, as demand picks up during the summer driving season. Demand is especially strong between the July 4 and Labor Day holidays.
Crude futures had fallen as low as $67.77 on Tuesday, the day before a government report showed gasoline fell when analysts had been expecting a big build. That Wednesday report fueled the late week rally into $70 territory.
The discovery of an unexploded car bomb in west London also boosted prices, analysts said.
Gasoline for July, which expired after the session closed, rose 2.75 cents to settle at $2.2942 a gallon on the Nymex. Expiring futures often rise as traders who have sold the contract short are forced to cover their positions.
August Brent crude on the ICE Futures exchange in London rose 89 cents to settle at $71.41 a barrel on Friday.
In other Nymex trading, natural gas prices rose 11.8 cents to settle at $6.773 per 1,000 cubic feet. On Thursday, the contract plummeted 42.8 cents to settle at $6.655 per 1,000 cubic feet after a government report showed natural gas inventories rose 99 billion cubic feet last week, more than analysts expected.
Heating oil futures for July, which also expired, rose 1.36 cents to settle at $2.0319 a gallon on the Nymex.
In the futures markets, prices have risen in recent weeks on concerns gas supplies are inadequate to meet summer driving demand. But as refineries finally start ramping up to meet that demand, traders also see demand for crude oil increasing.
The concerns were stoked on Wednesday when the Energy Department's Energy Information Administration reported that gasoline inventories dropped 700,000 barrels in the week ended June 22. Analysts polled by Dow Jones Newswires had expected a 1.1 million barrel gain.
But the EIA also reported a 1.8 percent increase in refinery utilization, higher than estimates of a gain of 0.8 percentage points.
Earlier in the year, an unusual number of refinery outages served as a bottleneck in the gasoline supply system, sending gasoline futures prices higher. At that point, oil followed gasoline higher in sympathy, traders said, even though crude stockpiles neared nine-year highs.
Now, as refineries come back online, oil prices seem less tethered to gasoline futures. Crude stocks are falling, reflecting growing demand for crude by refineries looking to crank out gasoline.
"The market is expecting more downward pressure on inventories as refinery utilization climbs," said SunTrust Robinson Humphrey in a research note.
"The return to production of BP (PLC)'s Whiting, Ind., refinery and Valero (Energy Corp.)'s McKee plant in Sunray, Texas, are the fundamental factors helping to drive the crude market higher," Addison Armstrong, an analyst at TFS Energy Futures LLC in Stamford, Connecticut, said in a research report.
BP's Whiting refinery had been running at about half of its 410,000 barrel-per-day capacity since late March. Valero's McKee facility, shuttered by a February fire, has a capacity of 164,000 barrels per day.
In Vienna, PVM Oil Associates noted that the end of peak refinery maintenance in mid-June should lead to "a significant reduction of planned maintenance in the U.S. ... in the third quarter." That, in turn, could increase the demand for crude and boost crude prices.
Armstrong said the discovery on Friday of an unexploded bomb in a car parked near Piccadilly Circus in downtown London was also helping to support oil prices.
But Tim Evans, an analyst at Citigroup Inc., argued that there was no fundamental reason for oil prices to be moving higher. Even if refinery utilization spiked much higher, there is plenty of crude on hand to feed the refining process, Evans said.
If, on the other hand, an argument that gasoline futures were pulling oil prices higher was valid, then gas futures would be setting records, he argued.
"(But) we've not made a new high in spot gasoline prices since early May," Evans said. "Let's not torture ourselves by trying to come up with a fundamental rationale."
So, what is going on?
"You're in territory where, I think, you're operating a little bit under the 'bigger fool' theory," Evans said.
In other words, people buying oil for more than $70 a barrel are just playing a speculative game, seeing, perhaps, if they can't find someone — a "bigger fool" — willing to pay $71, Evans said.