Oil Surges Past $120
on Supply Concerns
JOHN WILEN / AP 5may2008
NEW YORK — Oil futures surged to a new record over $120 a barrel Monday, raising concerns about higher prices for gasoline and goods and services throughout the economy. Retail gas prices fell more than a cent over the weekend, but oil's advance increased the likelihood that pump prices would resume their climb. Supply threats that emerged overseas and a weaker dollar sent light, sweet crude for June delivery to a new trading record of $120.21 a barrel on the New York Mercantile Exchange before futures retreated slightly to trade up $3.46 at $119.78.
Oil's sharp rise this year has driven gas prices to unprecedented levels, prompting consumers to reconsider summer vacation plans and limit daily excursions; they're also spending less at malls and shopping centers because they're paying more not just for fuel, but for all kinds of goods and services.
The mix of factors that drove oil to its latest record were a microcosm of the forces that have nearly doubled oil prices from their levels of about $62 a barrel one year ago. The dollar weakened against the euro on Monday, attracting investors to commodities such as oil which they see as a hedge against inflation. Also, a falling dollar makes oil less expensive to investors overseas. A series of Fed rate cuts starting last year weakened the dollar considerably against foreign currencies; analysts blame the dollar's protracted decline for oil's sharp rise this spring.
Supply outages or threats emerged in Iraq, Nigeria and from Iran on Monday; events in all three nations have caused prices to spike many times in recent months.
On Monday, "the (oil) market is bolstered by news out of Iraq, where Turkish forces have once again been involved in cross-border raids against ... insurgents, and Nigeria, where rebels attacked three oil wells and pipelines feeding (an) export terminal over the weekend," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.
Kurdish rebels warned they could launch suicide attacks against American interests to punish the U.S. for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. Oil traders worry that any conflict in the Middle East will cut oil shipments out of Iraq. Several previous incursions by Turkish forces into Iraq have caused oil prices to rise.
In Nigeria, a Royal Dutch Shell PLC spokesman said attackers hit an oil facility belonging to Shell's joint venture in southern Nigeria and that some oil production has been shut down. Years of unrest in Nigeria have cut off nearly a quarter of the major U.S. supplier's oil output.
Also pushing oil prices higher Monday were concerns about Iran after Supreme Leader Ayatollah Ali Khamenei said Sunday his country will not bend to international pressure and give up its nuclear program. Iran is the second largest producer in the Organization of Petroleum Exporting Countries.
Beyond the occasional threats to crude supplies, global demand for oil continues to grow. While demand for oil and gasoline has been soft in the U.S., the Chinese and Indian economies are growing by double digits, boosting global demand for oil.
At the pump, meanwhile, the average national price of a gallon of regular gas slipped to $3.611 a gallon on Monday, down 1.1 cents from Friday, according to AAA and the Oil Price Information Service. Prices reached a record $3.623 a gallon on Thursday.
Diesel prices also fell, slipping to a national average of $4.239 from a record $4.251 on Thursday. The runup in prices of diesel, used to power most trucks, trains and ships, is one reason why food prices are so high.
The slight relief motorists are seeing at the pump could end quickly if oil's rise continues. Analysts say gas prices could still go up another 10 cents or so. Indeed, Andy Lebow, senior vice president at MF Global Inc., thinks the gas price declines of the last four days are almost entirely due to crude oil's sharp drop last week; prices fell from $119.93 on Monday as low as $110.30 on Thursday before rebounding. Gas prices tend to follow prices in the futures market, but with some lag.
In other Nymex trading Monday, June gasoline futures rose 7.27 cents to $3.0391 a gallon, and June heating oil futures rose 9.43 cents to $3.313 a gallon. June natural gas futures rose 36.9 cents to $11.146 per 1,000 cubic feet.
Associated Press Writers Yahya Barzanji in Iraq, George Jahn in Vienna and Gillian Wong in Singapore contributed to this report.