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.
Huh?
Bullish! Bullish! Bullish!
$132 per barrel. Is that alot?
Hey, the cheap easy money from BurnYankee’s latest Fund Rates slashing had to find its way to a new bubble somewhere...
You are right about demand and the dollar, but speculators who buy at above market rates ALSO cause the high prices for oil.
To say speculators don’t contribute to the high price of oil is like saying speculators didn’t contribute to the housing bubble. You bet they did. By paying too much for a house and expecting to flip it for even more, they pushed the price of houses up for all houses in the neihborhood.
Sure, lower interest rates and easy credit pushed up the house prices as well, but so did speculators. And speculators are doing it again with oil? How much of that $132 per barrel is caused by speculation, I haven’t a clue. We’ll know after oil plunges back down to where it should be.
$132 per barrel. Is that alot?
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compared to just 2 years ago.. Yes.
It all depends if you buy stuff, use gasoline and have a vehicle or two. If not, then no, it's not a lot.
Well, the Senate was holding 'hearings' again, which usually precedes some misguided but highly visible attempt to "fix" things, and it is an election year, which increases the pressure to "do" something, with a high probability of catastrophic unintended consequences, (especially since most of the Senators I listened to have no clue about the industry or economics or hide it really well if they do), so there is probably a GF factor of at least 10% in the price, just because they might follow up with some grandstanding ingenious legislation which would further hobble the industry or maybe just crash the global economy once and for all.
No one is safe when their lips are moving.
I realize that speculation DRIVES the price. I’m looking at the underlying cause for that speculation. And, if demand were soft and supply was in abundance, speculators wouldn’t be acting the way they are because they would soon be eating their shirts.
All they are doing is BETTING on what they think the market is going to be like. If they are right, then they make money. We can moan and groan all day long about it, but do something novel like flood the market with oil and you will have a price drop. It is that simple.
“add-on ..
Thanks to DemocRats, Moderates & Greens .. and Speculators.”
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Not to mention so-called “free trade”, which has sent our manufacturing to huge competitors — who now are buying oil with all their new wealth, driving the price of that oil skyward — with the very same money we have been spending ... importing stuff from factories which (used) to be in America.
Our current situation is so utterly, non-sustainable.
We are giving away ... our future. To enemies of every stripe, around the globe! And this is somehow:
“Conservative”??
Inventories fell because we imported 700k less barrels of oil/day than the previous week, down to 9.2 million and almost a million less barrels/day than last year. Iran’s crude stored in tankers went from 20 million to 28 million in just one week. Companies in the US aren’t buying crude. The bubble is going to burst this summer, only problem is knowing when and at what price.
Why— in your opinion — are we importing 1 million less barrels per day than last year at this time and 700k less per day than just a month ago? Iran’s stock sitting in the gulf has gone from 20 million barrels to 28 million barrels in just a week. They are going to have to unload it at some point (I do realize it’s heavy crude though).
Are the speculators really banking on such high oil prices so far out in the future, or is this just the next bubble where speculators are following the “greater fool” practice.
We just came off a massive housing bubble where speculators paid what they knew to be over on the price of homes because the prices were rising so fast, they knew someone else would pay an even worse over-inflated price. Or perhaps they were just morons who truly believed a house an hour’s drive north of Sacramento would really always sell for $225 per square foot????
These current oil speculators either believe they can sell here shortly for even more and make a tidy short term profit, or they are deluded morons who think oil is really worth $150 a barrel or more and they are currently getting a bargain at $132.
My take is, greater fool theory fed by a combination of a crashing dollar, the return of high inflation and the return of cheap credit with the BurnYankee slashing the Fed Funds rate to 2.0%.
Borrow for nothing, buy oil at $100 in a rapidly rising market as people are looking to buy any assets because dollars aren’t worth the toilet paper they are printing on, then dump it off on some moron when it hits $150 on it’s way back to $60 or $70 where it stabilizes...
Gold is also traded in dollars. Does it get cheaper when the dollar is weak? Um, no.
When dollars are weak and getting weaker, people dump their dollars for real assets. As the dollar gets weaker, the relative value of real assets goes up. If the dollar gets weak, then gold — which is stable and kind of has the same value relative to goods and services overall — goes up.
If the dollar loses half its value, then it takes twice as many dollars to buy the same weight of gold it used to take. An ounce of gold that used to cost $400, now costs $800 because the dollar is only worth half of what it used to be worth.
The same is true of oil. Oil is worth what it is worth relative to other goods and services. Right now the price of oil hasn’t gone up too terribly priced against the Euro, which is strong. It has skyrocketed against the dollar, which is weak.
Portents of the future...?
Yep. I noticed the Senate, too.
They were expounding on how they would cure the energy crisis while berating a panel of oil industry execs, too. Something which underscored just how poorly they understand the situation, which would make me nervous if I had to have feedstocks to keep a refinery going.
The Senate's jealously and lowbrow dehumanizing tactics are just ploys to muscle in on the profits.
Higher oil prices mean more revenue for the fedgov, they're not upset at all.
The sad part is that they could open ANWR, even offshore, and not ding it badly at all, because there is sufficient demand out there to use up the surplus. Oil might drop a little, but there would likely be strong support for the price before it hit $80.
Those quantities are not strategically significant.
5-7 million less barrels per week isn’t significant? Annualized thats around 11 billion gallons of gas/diesel at the low end.
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