Oil Sets New Record: Over $132 A Barrel

Analysts Fear Little Can Be Done To Stem Runaway Prices

(AP)  Oil prices bolted to a new record above $132 a barrel Wednesday after the government reported that supplies of crude oil and gasoline fell unexpectedly last week. And crude's rise in the futures market again pressured consumers by pulling prices at the pump higher - a gallon of regular gas rose overnight to a new record above $3.80 a gallon.

With gas and oil prices setting new records on a daily basis, many analysts are beginning to wonder whether anything can stop runaway prices. 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.

In its weekly inventory report Wednesday, the Energy Department's Energy Information Administration said crude oil inventories fell by more than 5 million barrels last week. Analysts had expected a modest increase. 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 energy research firm Platts had expected.

Light, sweet crude for July delivery rose as high as $132.08 a barrel in late morning trading on the New York Mercantile Exchange before retreating slightly to trade up $2.67 at $131.65.

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 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.

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 fundamentals.

"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 6.43 cents to $3.3687 a gallon, and June heating oil futures rose 7.11 cents to $3.8461 a gallon. June natural gas futures rose 19.8 cents to $11.563 per 1,000 cubic feet.

In London, July Brent crude rose $3.10 to $130.94 a barrel on the ICE Futures exchange.

[oladywho]

There are engines that burn water in production right now. There are many websites showing these engines in use. The automotive industry isn%u2019t clamoring to build cars and trucks that have these engines because they don%u2019t want to spend the money to develop the technology and change engine compartment design. Congress should appropriate grants/funds for entrepreneurial development of these engines. They should also mandate a date by which all engines must burn water, just like television broadcasting will only be high definition by February, 2009. Technology is on the move in every other business, why not the oil and automotive industries? We should quit buying oil burners and insist on water burning engines in our vehicles.

In the first speech George Bush made as president he said congress should appropriate money for development of alternate fuel for engines to decrease our reliance on oil. We always thought gas would be cheap, so we didn%u2019t push and shove to change anything. We are reaping what we''ve sown, in our usual, apathetic, greedy way. Neither the president nor congress controls the cost of gas, folks. Our demand for oil does. It is so simple. If the demand goes down, the cost will go down. We will always need petroleum products, but weaning millions of cars and trucks from oil would help immensely. We need an alternate solution to oil. Many world problems would be alleviated also, because the ebb and flow of oil would not control world politics.

[wardoglrs]

The house of cards now in play.. American goverment and its decieved people are nothing less than a ***.
Your pimp is The Federal Reserve and its leader''s are secret to all. Heres a hint for the uninformed.

United Nation''s
CFR.
Cafta.
Nafta.
TC.
And many more.
Soon the usa will fall to its knees. Its people will be homeless. War Gas Food And inflation will put the US in the 3rd world bracket in the years that follow.
They will die in despair with there ipods on there heads. They have been dumb downed since birth brain washed by there Zion Masters the same ones that started ww2.

[bobnjersey]

[Gas prices have almost doubled since democrats took congress...You get a democratic president and prices will triple from these ''''no new drilling''''democrats.The democrats are not the solution...THEY ARE THE PROBLEM.]
[Posted by b48151 at 06:03 PM : May 22, 2008]

what a fool ... why don''t explain the connection between the democrats and the doubling of prices ... i can''t wait for this one.

[noloyalisti]

We need a Democratic president and Congress to reel in the out-of-control war-profiteering oil companies.

[bobnjersey]

[bobnjersey, I wrote my senators a few weeks ago, haven''''t gotten one reply back from them. ]
[Posted by ranger1948 at 06:14 AM : May 22, 2008]

the response to provide is likely now in committe and the specific ambiguous language to use is being negotiated as we speak ;-)

[mcvet]

We definatelky need to regulate the gas and oil companies again. It was the most stupid thing carter ever did in office.


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Posted by ranger1948 at 06:15 AM : May 22, 2008
+ report abuse

No no! That was NOT Carter. Better check your facts on that one. Carter did what the Fascist and the Oil Company''s said needed to be done. Old Ron was the man who lifed ALL controls on those corporations... IF you will Google the issue you will find that the Reagan Administration removed ANY and ALL price controls on Oil as THEIR "fix" to the problem.

[mcvet]

popstom1
I still drive thru open country and see oil wells sittig idle because the govt only allows them to drill for so much oil at a time. Another sign to show you govt is beinding us over coninuously.


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Posted by ranger1948 at 06:36 AM : May 22, 2008
+ report abuse

Ah but THAT was part of Darth''s "Energy Policy" if you remember. When Enron feel apart, the Wire Taps reveiled that Darth and the Bush Administration turned a blind eye toward Energy Company''s creating shortages. There is NO rule or law to prevent those wells from pumping oil or for anyone drilling deeper or in any area around them. That''s a decision made by the Oil Company''s. Fact is that our refineries are running, right now at 85% because there is to much demand created by the Global Economy. I guess that "Free" Trade the fascist pushed down our throat wasn''t "free" after all. Sieg Heil Bush

[omnibus66]

Does anyone really think that the oil companies give a cr@p about what the people or Congress think of them? They have us by the ba11s and they know it.

If you can''t afford $5 per gallon gas (coming soon to a station near you), get ready to walk or ride a bicycle.

If you think things are bad now, hang on, cause you ain''t seen nothin yet.

[ranger1948]

popstom1
I still drive thru open country and see oil wells sittig idle because the govt only allows them to drill for so much oil at a time. Another sign to show you govt is beinding us over coninuously.

[ranger1948]

We definatelky need to regulate the gas and oil companies again. It was the most stupid thing carter ever did in office.