http://www.foxbusiness.com/story/markets/industries/energy/oil-jumps-greenback-falls/
Wednesday, June 11, 2008
Oil Spikes on Supply Concerns, Weakening Dollar
Oil prices regained their stunning upward momentum Wednesday, rising
as crude's biggest drivers -- a weak dollar and supply concerns --
brought buyers back in force. At the pump, gas prices rose to a new
record over $4.05 a gallon.
Oil futures that were falling a week ago on concerns about declining
gasoline consumption have dramatically reversed course and appear
poised to set new records above $140 a barrel. While the market
remains concerned about the effect of high prices on demand, several
weeks of falling oil inventories and the dollar's inability to make
headway against the euro have combined to turn market sentiment
decidedly bullish.
That's bad news for consumers, already struggling with rising prices
for food and consumer goods. Analysts say gas prices could rise to a
national average of $4.25 a gallon by the Fourth of July, and are
unlikely to fall as long as oil prices keep surging.
On Wednesday, the Energy Department's Energy Information
Administration created new supply worries when it said oil inventories
fell by 4.6 million barrels last week. Analysts surveyed by energy
research firm Platts expected a much smaller decline of about 1.4
million barrels; any sign that oil supplies are falling has tended to
send oil climbing.
Light, sweet crude rose $5.07 to settle at $136.38 a barrel on the New
York Mercantile Exchange after earlier trading as high as $138.30. Oil
surged shot up more than $16 over the course of last Thursday and
Friday, reaching a trading record of $139.12 before pulling back
earlier this week.
The dollar's travails also sent oil prices rising. The euro bought
$1.5562 in late afternoon trading, up from $1.5449 Tuesday. Oil prices
have closely tracked dollar moves; last week's sharp price increases
came as the dollar fell. Prices then retreated more than $7 earlier
this week as the dollar gained ground.
"(Oil's) been hand in hand with what the dollar's been doing," said
James Cordier, president of Tampa, Fla.-based trading firms Liberty
Trading Group and OptionSellers.com.
Many investors buy commodities such as oil as a hedge against
inflation when the dollar falls. Also, a weaker greenback makes oil
less expensive to investors dealing in other currencies. Many analysts
believe the dollar's protracted decline is the primary reason oil
prices have doubled over the past year.
Energy investors are betting that the European Central Bank will raise
interest rates later this summer, and that the U.S. Federal Reserve
will hold rates steady until this fall, Cordier said. If rates rise in
Europe but remain unchanged in the U.S., the dollar will likely fall
further against the euro.
"That's going to really fuel the (investment) funds back into the long
side of crude oil," Cordier said.
Other elements of the EIA's re****t were considered bearish for prices.
Supplies of gasoline and distillate fuels such as diesel and heating
oil both rose last week, and demand for gasoline fell by 1.3 %.
But traders chose to focus on the big drop in crude supplies and the
weaker dollar, propelling prices higher. Crude inventories have fallen
by 23.6 million barrels over the past four weeks.
"If crude inventories were seriously in surplus, I think that would
start to override the effects of the dollar," said Michael Lynch,
president of Strategic Energy & Economic Research Inc. in Winchester,
Mass.
Retail gas prices, meanwhile, reached another record Wednesday, rising
0.9 cent overnight to a national average of $4.052, according to a
survey of stations by AAA and the Oil Price Information Service.
Prices continue rising, despite falling demand, because the price of
oil keeps moving higher.
While oil prices have slipped some from last week's record, analysts
say gas prices still have some catching up to do, and could rise
another nickel or so. Of course, if oil futures blast past that record
and reach new highs, gas prices will likely rise even higher.
EIA chief Guy Caruso on Wednesday said motorists should expect
gasoline prices to remain close to $4 a gallon through next year. On
Tuesday, the EIA predicted that gas pries will peak at a monthly
average price of $4.15 in August. Cordier thinks gas prices could
reach $4.25 by the Fourth of July if oil remains near $140 a barrel.
Diesel prices are also soaring, and rose to a new record of $4.792 a
gallon on Wednesday. Rising diesel prices are pu****ng up prices of
food and consumer goods trans****ted by train, truck and ****p. The
combination of high fuel and food prices is putting intense pressure
on many consumers, and raising the prospects of a severe economic
slowdown.
Oil prices were also sup****ted Wednesday by re****ts that Chinese fuel
im****ts rose more than expected over the first 5 months of the year,
and Royal Dutch Shell PLC's decision to extend force majeure on some
Nigerian oil ****pments. The legal declaration that means the company
can't meet contractual obligations to supply some customers. The
company first made the declaration following a militant attack in
April.
In other Nymex trading Wednesday, July gasoline futures rose 14.65
cents to settle at $3.4658 a gallon, and July heating oil futures rose
16.24 cents to settle at $3.9748 a gallon. July natural gas futures
rose 22.5 cents to settle at $12.66 per 1,000 cubic feet.
In London, July Brent crude rose $4 to settle at $135.02 a barrel on
the ICE Futures exchange.
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