Gas And Oil Prices Hit New Records

Pat Gill fills up his SUV with gas at a BP Station, Wednesday, March 12, 2008, in Baltimore. Gasoline and oil prices extended their record-setting streaks Wednesday, with gas at the pump reaching a new high of nearly $3.25 and crude surpassing $110 for the first time. AP Photo/Rob Carr

Crude oil futures topped $112 per barrel, setting a new record after a weekly U.S. government inventory report on Wednesday showed an unexpected decline in inventories. Gasoline futures also climbed on a drawdown in stocks.

The U.S. Energy Information Administration's inventory report, closely watched by the market, showed crude stocks fell by 3.2 million barrels last week. Analysts surveyed by Dow Jones Newswires expected, on average, a 2.4-million-barrel-increase.

The inventory slide sent light, sweet crude for May delivery up $2.37 to settle at a record $110.87 a barrel on the New York Mercantile Exchange after earlier rising as high as $112.21. That beat a trading record of $111.80 set last month.

The EIA also said gasoline and distillate supplies - which include diesel fuel and heating oil - fell more than expected last week.

May gasoline futures rose 2.38 cents to settle at $2.7742 a gallon on the Nymex - a level that approaches the record futures price of $2.925 per gallon set in 2005 when Hurricane Katrina struck New Orleans.

The national average price of a gallon of regular unleaded gas rose 1.2 cents to a record $3.343 a gallon, according to a survey of gas stations by AAA and the Oil Price Information Service. With the peak of summer driving still to come and gas also following crude higher, the fuel may well reach the retail price of $4 a gallon that the Energy Department said was a possibility.

But gasoline prices that are 55 cents higher than a year ago are hurting demand for gasoline, which fell last week by nearly 2 percent from year-ago levels, the EIA said. It is not yet known if demand will continue to drop, and if so, if that will affect prices.

"People are cutting back on gasoline purchases because the economy is squeezing them right now," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Analysts expect demand for gasoline and oil to fall further as prices rise. Theoretically, that should bring prices down. But so far this year, prices have shown little inclination to fall in response to eroding demand. With gasoline supplies shrinking and the summer approaching - when demand, while weaker than last year, will be stronger than it is now - consumers may have to wait until this fall for price relief.

Some analysts cautioned against reading too much into last week's drop in crude supplies, noting a sharp drop in imports over the same period.

Before the EIA issued its report, oil prices were already higher due to the dollar's slide against the euro Wednesday. Many investors see commodities such as oil as an effective hedge against a falling dollar and inflation. Also, a weaker greenback makes oil cheaper to investors overseas.

Analysts attribute much of oil's rise this year to speculative buying tied to the falling dollar. With the Federal Reserve expected to cut rates several more times this year, which will likely further weaken the dollar, oil prices may continue rising despite tepid demand.

May heating oil futures rose 12.43 cents to settle at $3.2345 a gallon after earlier rising to a trading record of $3.2561 a gallon.

  • CBSNews

Comments

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.