Oil Prices Pass $134 Per Barrel After A Report Of Supply Drop

NEW YORK (AP) - Runaway oil prices blew past $130 a barrel for
the first time Wednesday and kept going, while gasoline prices
persisted in their own relentless climb, rising above $3.80 a
gallon. Supply worries, rising demand and a slumping dollar are
conspiring to make filling up the car - and paying for just about
everything else - a growing burden for Americans.
With gas and oil prices setting new records on a daily basis,
many analysts are beginning to wonder whether anything can stop
prices from rising. There are technical signals in the futures
market, including price differences between near-term and
longer-term contracts, that crude may soon fall. But with demand
for oil growing in the developing world, and little end in sight to
supply problems in producing countries such as Nigeria, few
analysts are willing to call an end to crude's rally.
Oil's Wednesday rally was fed in part by a report from the
Energy Department's Energy Information Administration, which said
crude inventories fell by more than 5 million barrels last week.
Analysts had expected a modest increase.
Light, sweet crude for July delivery rose $4.19 to settle at
$133.17 a barrel on the New York Mercantile Exchange, but prices
rose as high as $134.15, up $5.17, in after-hours electronic
trading. It was crude's largest one-day price advance since March
Investors seized on the inventory report to boost prices
Wednesday, but traders interested in pushing prices higher are
increasingly picking and choosing which news they wish to pay
attention to, analysts say.
"Even if this report was bearish, with the momentum the way it
is right now, it wouldn't matter," said Phil Flynn, an analyst at
Alaron Trading Corp. in Chicago.
Crude prices first passed $130 overnight on concerns about
demand and a weaker dollar. Analysts say crude has been boosted in
recent days by especially strong demand for diesel in China, where
power plants in some areas are running desperately short of coal
and certain earthquake-hit regions are relying on diesel generators
for power.
The dollar, meanwhile, weakened against the euro Wednesday.
Investors see hard commodities such as oil as a hedge against
inflation and a weak dollar and pour into the crude futures market
when the greenback falls. A weak dollar also makes oil less
expensive to buyers dealing in other currencies.
Many investors believe the dollar's protracted decline over the
past year has been the most significant factor behind oil's rise
from about $66 a barrel a year ago to today's highs.
At the pump, meanwhile, the average national price of a gallon
of regular gas rose 0.7 cent overnight to a record $3.807 a gallon,
according to a survey of stations by AAA and the Oil Price
Information Service. Prices are 60 cents higher than a year ago,
and many forecasters believe they'll hit $4 on a national basis at
some point over the next month.
"That's a fait accompli at this point," said Linda Rafield,
senior oil analyst at Platts, the energy research arm of
McGraw-Hill Cos.
Prices are already that high in many parts of the country, and
the number of stations charging $4 or more rises each day. Prices
are nearing $5 a gallon in parts of Alaska.
Diesel fuel rose 1.9 cents to its own record of $4.558 a gallon
Wednesday. Rising prices of diesel, used to transport most consumer
and industrial goods, are sending prices of food and many other
goods higher.
There are signs that high prices are cutting demand for
gasoline, which fell slightly over the past four weeks and has been
mostly lower since January, according to EIA data. Only serious
"demand destruction," a jump in supplies from Nigeria or other
oil producing nations or a jump in gasoline output by U.S. refiners
could stop prices from continuing to rise, Rafield said. There is
little sign that demand will fall anytime soon in fast-growing
China, India and the Middle East, she said.
A move by the government to shore up the dollar, or an
announcement that the Federal Reserve won't cut interest rates
further, could also reverse the upward momentum, Flynn said; rate
cuts tend to weaken the dollar. On Wednesday, the Fed released
minutes of its most recent meeting that left the impression it's
not inclined to cut interest rates further.
Still, the price differences between the current, July crude oil
contract and contracts for delivery of oil in later months signal a
possible correction, or sharp price downturn, at some point,
Rafield said. Many analysts have long argued that prices have risen
well beyond levels that can be justified by supply and demand
"It's very difficult to call when this is going to happen, but
when it happens, it's going to be quick and ugly," Flynn said.
In other Nymex trading, June gasoline futures rose 9.21 cents to
settle at $3.3965 a gallon after rising to a trading record of
$3.4081, and June heating oil futures rose 13.34 cents to settle at
$3.9084 a gallon after setting a new trading record of $3.9187.
June natural gas futures rose 27.5 cents to settle at $11.64 per
1,000 cubic feet.
The EIA said gasoline inventories also fell and took the market
by surprise, while inventories of distillates, which include
heating oil and diesel fuel, rose less than analysts surveyed by
Platts had expected.
In London, July Brent crude rose $4.86 to settle at $132.70 a
barrel on the ICE Futures exchange.
Associated Press writer Pablo Gorondi in Budapest and AP
Business Writer Thomas Hogue in Bangkok, Thailand, contributed to
this report.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

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Comments are posted from viewers like you and do not always reflect the views of this station.
  • by susan Location: ky on May 22, 2008 at 06:24 AM
    This is the republican energy policies at work---someday the voters in this country will wake up, don't you just love it?
  • by Crystal Location: Wallingford on May 22, 2008 at 04:15 AM
    extra. We can't even afford to go to work with price's of everything going up but our pay staying the same how can anyone affford to do anything? Something's got to give! The gov. is making all kind's of money so it doesn't affect them, but what about us little people who work 90 hr's a week just trying to make it?
  • by Bob Location: Middlesboro on May 21, 2008 at 09:09 PM
    Oil Prices are ripoff city. Theres no shortage and never will be. Bush is getting rich before he gets out of the office.
  • by sue Location: pike on May 21, 2008 at 08:36 PM
  • by crystal Location: knott co. on May 21, 2008 at 04:17 PM
    Well I posted on the last news report on oil prices, joking I said president bush had went to the middle east. which he did, to pursaude the shiek or whatever they are called to raise the oil prices. Well it does't look like it's a joke, at this pace $150.00 a barrel will be reached even before June. Things realy does'nt look good for us hear in the red,white and blue. Our people that work at a low wage, and drive 60 or 70 miles to and from work, they are not going to bring home much money after uncle sam,fuel and lunch. That leaves a small portion to live and raise a family on. I have though and pondered what will become of this great God blessed land that we call home. I myseft think that we are heading to be called a third world country. And I believe that God is about to call it that time as you and I know it to be no more. May God help us all.


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