NEW YORK (AP) - Gas and oil prices pushed further into record
high territory Tuesday, with retail gas reaching a national average
of $3.51 for the first time and crude nearing $120 as the dollar
fell to a new low against the euro.
At the pump, the national average price of a gallon of regular
gas rose 0.8 cent Tuesday to $3.511, according to a survey of
stations by AAA and the Oil Price Information Service. Prices for
diesel - used to transport most food, industrial and commercial
goods - also rose overnight to a new record of $4.204 a gallon.
Gas prices are nearly 66 cents higher than last year, when they
peaked at a then-record of $3.23 in late May, and have prompted
many analysts to raise their estimates of where gas is going to go.
"I wouldn't rule out the possibility that we could get to $4,"
said Antoine Halff, an analyst at Newedge USA LLC.
Other analysts are less certain. Fred Rozell, retail pricing
director at the Oil Price Information Service, thinks gas prices
will rise only another 10 cents to 20 cents nationally. That would
mean they would peak near $4.15 a gallon in California, where
prices are typically highest, and around $3.50 in New Jersey, where
they're typically lowest.
Gas prices are rising for many reasons, including oil's record
run. Light, sweet crude for May delivery rose to a new trading
record of $119.90 before retreating to settle up $1.89 at a record
$119.37 a barrel on the New York Mercantile Exchange. The contract
expired after the Nymex closed, which contributed to its spike
higher as investors scrambled to square bets. June crude futures,
which now become the focus of trading, rose $1.44 to settle at
$118.07 a barrel, nearly $2 shy of the $120 level.
Many investors see commodities such as oil as a hedge against
inflation and a falling dollar. Also, a weaker greenback makes oil
cheaper for investors overseas.
The dollar fell Tuesday after the National Association of
Realtors said sales of existing homes dropped in March while the
median home price declined, raising prospects that the Federal
Reserve will cut interest rates further this year to try to shore
up the ailing economy. Fed interest rate cuts tend to further
weaken the dollar.
Oil also rose on concerns about supply constraints overseas. A
Royal Dutch Shell PLC joint venture declared what's known as force
majeure on April and May oil delivery contracts from a
400,000-barrel-a-day Nigerian oil field due to a pipeline attack
last week. The move protects the company from litigation if it
fails to deliver on contractual obligations to buyers.
In Mexico, oil production slipped 7.8 percent in the first
quarter to 2.91 million barrels a day as output at the country's
oil fields waned, state oil company Petroleos Mexicanos said. In
Scotland, workers at Ineos PLC's 196,000 barrel-a-day Grangemouth
refinery and petrochemical plant threatened to strike over changes
to an employee pension plan.
While gas prices are following oil futures higher, they're also
rising because supplies are falling. Refiners are in the process of
switching over from making winter grade gasoline to the
more-expensive, less-polluting, form of the fuel they're required
to sell in summer. That's pushing supplies down as producers try to
sell off all of their winter gas.
Gasoline supplies are also being hurt by low profit margins.
Refiners have to buy the crude they turn into fuel, but falling
demand for gasoline has hurt their ability to raise gas prices as
much as they would like. While the average profit margin on
gasoline hovers above $10, analysts say margins have gone negative
in some parts of the country in recent weeks. In those cases,
refiners were actually losing money on every gallon of gas they
made. Many refiners have reacting by producing less gas.
"Very high crude prices can constrain gasoline supplies as it
hurts the margins," Halff said.
In other Nymex trading Tuesday, May gasoline futures rose 3.73
cents to settle at $3.0164 a gallon after earlier rising to a
trading record of $3.025, while May heating oil futures rose 0.55
cent to settle at $3.3169 a gallon after earlier rising to their
own trading record of $3.35. May natural gas futures fell 12.6
cents to settle at $10.607 per 1,000 cubic feet.
In London, June Brent crude rose $1.52 to settle at $115.95 a
barrel on the ICE Futures exchange.
Associated Press writers Pablo Gorondi in Budapest and Gillian
Wong in Singapore contributed to this report.
(Copyright 2008 by The Associated Press. All Rights Reserved.)