Oil Prices Hit Record High

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Oil prices jumped to a record above $75 a barrel on Wednesday, propelled by a rally in gasoline that analysts said could send average U.S. pump prices past $3 a gallon by the weekend.

Recent snags in oil-shipping and refining along the Gulf Coast have raised traders' concerns about motor-fuel supplies at a time when demand continues to rise despite soaring prices.

The start of a new fiscal quarter also has brought more speculative money into the market, brokers said.

"Everybody thought we'd hit a price that would create permanent demand destruction. But demand for gasoline is rising," said Alaron Trading Corp. analyst Phil Flynn. "Once again the American public has shown its ability to get over paying high prices for gasoline."

A protracted diplomatic standoff between the West and Iran, OPEC's No. 2 oil supplier, has kept a high floor beneath prices, and analysts said geopolitical tensions were heightened further on Wednesday by North Korea's test-firing of missiles.

Light sweet crude for August delivery briefly surged to $75.40 a barrel on the New York Mercantile Exchange before easing back to settle at $75.19, an increase of $1.26. Gasoline futures jumped by more than 5.7 cents to settle at $2.2758 a gallon, heating oil closed at $2.0626 a gallon, up 3.4 cents.

With refiners fetching the equivalent of $95 a barrel or more for gasoline — there are 42 gallons in a barrel — "one doesn't have to be disciplined in the buying of crude," explained Tom Kloza, an oil analyst at Oil Price Information Service in Wall, N.J

Oil prices are now roughly 26 percent higher than a year ago, but still below all-time inflation-adjusted highs of around $90.

The average retail price of gasoline is $2.93 a gallon, according to OPIS. But Kloza said pump prices are likely to surpass $3 a gallon as early as this weekend.

U.S. retail gasoline prices peaked at $3.07 a gallon, on average, last September, reflecting the extreme tightness in the market following Hurricane Katrina, which knocked out pipelines that deliver fuel to the East Coast and Midwest.

While oil prices are on the upswing, natural gas futures continue to head lower amid record levels of domestic supplies. Some analysts say domestic storage could reach its limits by the end of summer, forcing some producers to cap wells. On Wednesday, August natural gas futures fell 33.9 cents to settle at $5.765 per 1,000 cubic feet — the lowest level since Sept. 28, 2004.

But with global oil demand approaching 85 million barrels per day, traders are extremely nervous about the possibility of any supply disruptions, especially because there is less than 2 million barrels a day of spare production capacity, most of it in Saudi Arabia.

And concerns over North Korea's nuclear missile test sent oil higher and stocks lower, CBS News' Alexis Christoforous reports.