Gas Pushes Above $4, Likely To Go Higher

National Average Spikes After Unprecedented Oil Price Rally; Saudis Call For Meeting

(CBS/AP)  Retail gas prices rose further above a national average of $4 Monday, and are likely to keep rising as distributors and retailers hike prices in response to last week's unprecedented oil price rally. Oil futures, meanwhile, retreated as investors sold to lock in profits from the run-up, though oil prices may be headed even higher.

At the pump, the national average price of a gallon of regular gas rose 1.8 cents overnight to a record $4.023, according to AAA and the Oil Price Information Service. Prices first moved above $4 nationally on Sunday, though they've been higher than that in many parts of the country for weeks.

If oil prices remain near $139 a barrel, last week's record high, gas prices will likely rise another dime in coming days, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.

"The numbers do have some catching up to do," Kloza said. "There's a bit of a tape delay that happens with gasoline."

Meanwhile on Monday, Saudi Arabia said it will call for a meeting of oil producing countries and consumers to discuss soaring oil prices and work to prevent unjustified rise in prices. Information and Culture Minister Iyad Madani said the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future."

CBS News correspondent Priya David reports the rocketing cost of gas will affect every aspect of American life, reaching far beyond the fuel tank fill-up.

The cost of Kimberly-Clark diapers, maker of the popular Huggies brand, will go up by eight percent; Goodyear has raised the price of it's synthetic tires by 15 percent; Dow chemicals, maker of oil-based paints and plastic mobile phones, has increased its prices 20 percent across the board, reports David. All these items are manufactured using petroleum-based products.

Jordan Goodman, of MoneyAnswers.com, told David the whole "lifestyle in America is based on cheap gas."

"We've built these suburbs all over the place on the assumption that we're going to have one dollar a gallon gas, not four or five dollar a gallon gas. So the whole infrastructure of the country is built, in a way, on something that doesn't exist anymore," Goodman said.

Consumers are cutting back on their consumption of gas in response to the high prices, but gasoline producers have little choice but to keep raising prices when the cost of their chief raw material - crude oil - rises. Friday's jump of nearly $11 in oil prices put new life into gas prices, which had appeared to be topping out.

At $150 a barrel - the Morgan Stanley price prediction that helped ignite Friday's oil rally - gas would cost about $4.40 a gallon, Kloza said.

Gas prices often peak around Memorial Day, then retreat over the course of the summer. But this is far from a normal year. Oil prices have been marching steadily higher since last fall, and occasional price corrections of $10, or more, have been followed by rapid rebounds to new heights. Last week, oil prices rose nearly 14 percent in two days, trading as high as $139.12 a barrel, after slumping more than $13 from a previous record high.

On Tuesday, light, sweet crude for July delivery fell $2.74 to $135.80 a barrel in volatile trading on the New York Mercantile Exchange.

"There's some profit taking going on, which is understandable after that sort of move," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.


One of the factors that underpinned Friday's rally - an Israeli cabinet minister's comment that his nation might attack Iran if it didn't halt its nuclear program - appeared to dissipate over the weekend as Israeli Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that the minister, Transportation Minister Shaul Mofaz, had not been expressing official government policy.

But other factors support high oil prices. An explosion last week at a natural gas production facility in Australia has boosted demand for diesel by that country's mining sector, Armstrong said. In Nigeria, a major U.S. oil supplier, a strike later this week could take 450,000 barrels in daily oil supplies off the market, Armstrong said. Both events highlight how tight oil supplies are.

The upward swing in crude began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation.

"Trichet has managed what no war, no hurricanes, no OPEC has ever managed to do," analyst Olivier Jakob from Petromatrix in Switzerland said in a research report. Trichet's statements "shocked the financial system," Jakob said, and sent the dollar falling against the euro.

Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. On Monday, the effect reversed; the dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas.

Some analysts see warning signs in Friday's bold oil price jump.

"It was a freakish oil market Friday as the market's worst fears - some real and some imagined - exploded into a rhapsody of wild buying," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago, in a research note.

The $10.75 move had some of the hallmarks of a "blow-off top," Armstrong said, or a rapid, explosive run-up in prices that's followed by steep declines. Still, it's far to early to tell for sure, he added.

"You never know you've been in a bubble until it's gone," Armstrong said.

In other Nymex trading Monday, July gasoline futures fell 10.75 cents to $3.4404 a gallon, and July heating oil futures fell 6 cents to $3.914 a gallon. July natural gas futures rose 1.6 cents to $12.709 per 1,000 cubic feet.

In London, July Brent crude fell $2.94 to $134.75 a barrel on the ICE Futures exchange.

[petro49l]

Why pay $5 a gallon for gasoline to an Arab? There are alternatives to purchasing their petroleum. American Oil Companies could take the option of drilling for off shore oil in South America. The Governments of those countries are begging to lease the sites. South America needs a new rain forest. Oil proceeds could easily pay for the labor and equipment to reproduce the Amazonian tropical paradise.

[deacon20081]

Valero Oil announced it is CLOSING DOWN gasoline refinery operations. Why? Tighter supplies mean more profits.

This is a fact.

[deacon20081]

New EXXON/Mobil SIGN!!!!!!
NO CREDIT? BAD CREDIT?
"NO ONE TURNED DOWN ... ......WE WILL FINANCE YOUR FILL UP!!!" ALL YOU NEED IS YOUR CLEAR CAR OR TRUCK TITLE"
Disclaimer: we reserve the right to steal your car or truck in the dead of night..500% interest per week applies on all balance paid or not.

[cyberus-2009]

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The Brazilians have gotten off of foreign oil by using sugar cane to make ethanol. Maybe we should take notes and become more energy independent too. Reduced susidies for other crops might encourage farmers to look into this idea. Sorghum is a really good source of the sugars needed to make ethanol and it is very easily grown.

Posted by stupidrules3
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Sugar beets can be added to the list .. they grow in less than optimal climate, in soil that requires much working and/or heavy fertilizer loads to grow other crops. The pre-harvest greens are a great feedstock and the post process mass can be used as feedstock too.
However comma pause ... the biggest drawback of many alcohols as fuel is that to distill it you have to produce as/almost as much pollution and use fuel to distill it in the first place, which is why even the environmentalists have pulled back on corn ethanol ... in the end its worse than using the il directly.

[vnveteran72]

How about the Bill before Congress to REPEAL the Oil Company Government Welfare Hand out, and institute a 25% Tax on ALL Profits......the Repukes said they''ll Filibuster it, and Shrub said he''ll Veto it......
So you KNOW it must be good......Go Democrats.....
Kick some GOPerv/Neocon Nazi Azz!!!!

[stupidrules3]

How about a war on oil? If we mobilize our resources as in WWII to produce the alternate fuels we could substantially dent the oil companies hold on this country.

[stupidrules3]

The Brazilians have gotten off of foreign oil by using sugar cane to make ethanol. Maybe we should take notes and become more energy independent too. Reduced susidies for other crops might encourage farmers to look into this idea. Sorghum is a really good source of the sugars needed to make ethanol and it is very easily grown.

[stupidrules3]

I have started writing letters to my representatives in government to get them to require all gas stations affix a gallon jar of KY jelly to every gas pump.

[clovisbuford]

i worked in the oil field for half of my working career,my brother is still making a good living at it. We all know the price of oil at this point is the result of market manipulation and speculation as opposed to actual supply and demand. Oil was $20 a barrel in 2000 when GW bush took office,now its $136 a barrel ,and they want to blame liberals for high prices. Gas prices have little to do with the price of oil as well, refining companies made a deliberate decision in the 80s to start limiting production by shutting down refineries ,while engaging in a PR war by blaming environmentalists,win/win , less refineries and production and you get to blame environmentalists who are becoming aware of global warming in their early awareness.In the last 20 or so years more than 25 refineries have been shut down by their companies .

[element51]

You''re gonna get a good laugh out of this one. They interviewed a man from Mexico on the local news tonight. He and his wife and 18 children had come to the US to work. He said that because of the high prices here, gas and food and rent and utilities, they were going to go back to Mexico so they could live better. I swear to God I''m not making this up. I was ROFLMAO. Wouldn''t it be a hoot if Americans started sneaking into Mexico to persue a "better life"? Maybe we could sell Mexico our wall.