Posted on 05/21/2008 9:10:04 AM PDT by NormsRevenge
NEW YORK - 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 have already risen too high. But with demand for oil growing in the developing world, and little end in sight to supply problems in oil rich nations 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 $2.75 at $131.73.
Investors seized on the inventory report to push prices higher Wednesday, but traders interested in pushing prices higher are increasingly picking and choosing which news they wish to pay attention to, analysts say.
"Just the slightest piece of bullish news will cause prices to surge," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. But prices also rise when bearish news is reported, a sign that the market wants to move higher regardless, she added.
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 country is also increasing diesel imports ahead of the Olympics, analysts say, driving up prices.
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," Rafield said.
Prices are already that high in many parts of the country, and the number of stations charging $4 or more rises each day.
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.
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. Whether, or when, that will happen is impossible to gauge.
In other Nymex trading, June gasoline futures rose 6.06 cents to $3.365 a gallon, and June heating oil futures rose 7.04 cents to $3.8454 a gallon. June natural gas futures rose 21.6 cents to $11.581 per 1,000 cubic feet.
In London, July Brent crude rose $3.37 to $131.21 a barrel on the ICE Futures exchange.
Looking at the Progress Energy website: Coal 47% Gas/Oil 18% Nuclear 35% Right now electricity costs me around $.08kwh on avg. Maybe a little less.
I need someone to explain why a weak dollar = expensive oil. I don’t get it. If the dollar is weak, and oil is traded in it, wouldn’t oil be cheaper?
NYMEX crude index 132.72
RBOB gasoline 3.32
heating oil 3.89
Pretty much terra incognita.
There's plenty evidence that the price of oil increases even when supply grows more than expected. To me that suggests something else besides 'peak oil'.
"Oil hits record despite supply growth After an initial dip, crude futures settle at a record $123.53. Government report shows that crude inventories jumped more than expected and gasoline stockpiles grew."
http://money.cnn.com/2008/05/07/markets/oil_eia/
When OPEC was formed they agreed to price oil in dollars. That was when the dollar was on the gold standard and was a stable currency.
Since Nixon took us off that gold standard (and the ensuing OPEC embargo) the dollar "floats" on the world market against a "basket" of currencies.
In 1964 an US Quarter (90% silver) would buy a gallon of gasoline. In 2008 that same 1964 US quarter is worth about $3.65 and will still buy a gallon of gasoline.
So if you have gold or silver, you wouldn't notice much change in the price of gas.
What's dramatically changed is the value of all that paper money you have.
What neck of the woods???? I live in Oregon and my gas bill just showed a drop from $1.07/therm to $1.05/therm. $1.80, yikes.
I disagree. This is a transitional period. A LOT more oil can be recovered with directional drilling and enhanced recovery methods and smart well technology. But oil companies will not bother making large-scale investments in that technology until they are convinced the price of oil will stay above the extract cost of those new technologies. They've been burned before.
Maybe bicycles, and motorized scooters are the new ‘market’ to get into.
Orlando.
My bill says 0.55571 for Base Energy per therm and another 1.25000 for "Fuel adjustment" per therm. Plus a customer fee of $8.00, 20% taxes, yada, yada.
Can any of you guys explain what a therm equals in terms of a monthly heating bill? I use propane and just locked in a cap of $2.52/gallon for this coming season (Oct-Mar). I use 1200 gallons/year, normally, and that will drop this year because 1) business sucks and accounts for about 350 gallons/season in my shop 2) we are putting a woodstove in the shop and 3) business sucks and accounts for perhaps 50/gallons a month in hot water in the house. I am still paying off last winter’s bill and a top-off fill in April at $2.30/gallon. The kicker is, if I use below 950 gallons, my rate per gallon for the following year will go up. I have already heard of $3/gallon propane for residential this month.
So, how many therms heat how many sq feet/supply how much hot water? I have friends on natural gas in a large Victorian. With half the house shut off during the winter, they paid around $500/month, but I think that might have included electricity, as well.
Just curious. We have zero opportunity to switch. I recall in the 70s, people switched to electricity and then, when oil (and therefore propane)went back down, the electric heat/hot water was very high, comparatively.
Eggzaktly!
Uh-huh. BOHICA.
If this guy is correct, his figures may help you out - http://wiki.answers.com/Q/A_natural_gas_thermal_unit_equals_what_equivalent_amount_of_liquid_propane_gas
We use about a therm a day of natural gas. That does our water heater, dryer and stove. So my bill for this past month was for 3200 cubic feet of natural gas which equals 34 therms.
Velocity. Rate of production. Can production keep up with demand? It’s not what is in the ground, which is about equal to a six mile cube.
<< Here comes price controls!
And it worked sooo well the last time they tried it. Guess everyone has forgotten that though. >>
I don’t think even the ‘rats will be dumb enough to try that again, by fixing prices either “at the pump” or up through the refining/processing/delivery chain.
(ASIDE: you never know about Obama, though - he’s an out-and-out Marxist at heart, with an elite superiority complex that might prompt him to “order the masses” to whatever he declares.)
There have been several discussion threads today about the rapidly-escalating price of petroleum and gasoline, but I’ve yet to see anyone speculate on what the ‘rats actually will attempt to DO about it, once they’re in power. And make no mistake about it - they WILL be in power if prices keep rising at the pump as they have the last few months. $6.50-7.00 gasoline isn’t going to help Mr. McCain or any other Republicans, regardless of B. Hussein’s skin color.
So, I’ll toss out MY ideas of what they will do to try to get things back under control again...
I sense that, at heart, at least SOME influential ‘rats understand the relationship between supplies, demand, and prices.
There is no “supply crisis” in the United States. There’s plenty of fuel to go around, if you have the $$$ to buy it. There _is_ the reality that currently, worldwide demand is growing faster than worldwide supplies can fulfill those demands, putting an upwards pressure on prices. This is NOT likely to change anytime soon. It may not change in our lifetimes. Indeed, price-pressures may accelerate upward in the next few years.
So, if a “crisis” exists here in the USA, it is one of _rising prices_, not supply. And there isn’t much we can do about worldwide demand. Notice, I said “worldwide” demand.
But I’m guessing the ‘rats will conclude that the action that must be taken to force prices downward is to REDUCE DOMESTIC DEMAND. What, then, will they do to accomplish this?
First, expect to see the 55mph limit re-imposed nationally. Actually, I can’t argue with this, because it is a proven fact that vehicles consume fuel more efficiently at 55 than at 65 or higher. This IS going to happen. The only question is when.
Next, the ‘rats are going to figure that if they can’t “tax prices down” with windfall profits on the oil producers (they will TRY this first, of course), they’ll force “big oil” to reduce prices by reducing “demand at the pump”. The only way to do this is to take actions that will effectively limit the SALES of gas at the pump.
We may again see the imposition of “odd/even” days for fuel purchases, based on license plates.
When that doesn’t work as planned, we may see the ‘rats take other steps to _force_ Americans to buy less fuel.
I would expect some kind of “mileage tax” based on miles driven. I believe this has ALREADY BEEN PROPOSED up in Oregon (proposed, not implemented). Vehicles will be checked either electronically, or, perhaps a once- or twice-yearly “checkstop” at designated locations, where state officials will record vehicle registrations and mileage - and then send the vehicle owner a tax bill. Drive less, get taxed less. And driving less cuts the demand for gas.
Eventually, they may resort to out-and-out gas rationing, based on monthly ration cards or the like. Again, their reasoning will be to limit the amount of fuel that can be purchased, with the expectation that lower demand will force the oil companies to lower retail prices.
What the ‘rats DON’T count on is the various ways in which sellers, processors, and buyers will fight back to thwart their attempts.
Nevertheless, I predict that these are some “solutions” that the democrats will try to impose upon Americans to “get prices down”.
Freepers, the flame suit is on. Feel free to shoot me down!
- John
The only reason the velocity is not there is because investors are not convinced this is a permanent price point. Lots of investors got burned the last time around when the price of oil tanked. Once they are convinced, projects will commence with a vengence - include coal-to-diesel, which IMO is the future of American transportation fuels.
Egads, too many variables. Is your house 100 years old and no insulation and lots of drafts, or is it brand new with R-25 in the walls and tighter than a frogs butt (which is water tight BTW)??? Is it exposed to the sun or is it surrounded by trees??? 45th parallel or Gulf Coast??? Sea level or 4,000' elevation???
1 therm is equal to 100,000 BTU's of heat, 1 gallon of propane has about 92,500 BTU's. I pay $1.05/therm and you're paying $2.30/gal of propane. My house is not very well insulated, 1,600 sq ft., very close to the 45th parallel, 500' above sea level, and during the coldest months I was using around 125-135 therms.... my highest gas bill this winter was $150ish. I also heat my water with gas, have a gas stove, but have an electric clothes dryer.
I replaced my 30+ year old clunker of a gas furnace in November with a 95% efficient, 2-stage, variable speed gas furnace and dropped my gas bill 33%. It would cost me twice as much money to heat my house with propane than with natural gas.
I tend to agree with the majority of what you said.
I do think the cost is eventually going to cut into demand. Part of the absurdity about it being a crisis. Must not hurt the majority too damn bad or they would quit/reduce buying.
The Red Rocker is going to have to get busy and update the song!
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