Oil Pushes Past $101 on Fed View

NEW YORK — Oil futures rallied again Wednesday, pushing briefly past $101 a barrel after the Federal Reserve lowered its forecast for economic growth this year, convincing energy investors that the central bank will slash interest rates further. At the pump, meanwhile, gas prices rose another 2 cents overnight.

The Fed said damage from the housing slump and problems in the credit markets will slow economic growth to between 1.3 percent and 2 percent this year, down from a previous forecast for GDP growth of between 1.8 percent and 2.5 percent.

Oil investors can interpret such news in one of two ways: Selling on concerns that the economy, and thus demand for oil, is cooling; or buying on the prospect that interest rates will fall, weakening the dollar and feeding new buying of oil futures. On Wednesday, they definitively chose the latter view.

"The Fed was ... the catalyst to get us going here," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The contract for March delivery of light sweet crude, which was expiring later Wednesday, rose 73 cents to settle at a record $100.74 on the New York Mercantile Exchange after earlier rising as high as $101.32, a new trading record. On Tuesday, the contract jumped $4.51 a barrel.

Falling rates tend to weaken the dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. In the moments after the Fed released its forecast, oil prices spiked sharply higher.

"This is unbelievable," Flynn said.

Earlier, crude prices fluctuated in part due to low trading volumes. Trading in the expiring March contract was about 10 percent of the level of trading in April crude oil, which will become the front-month contract on Thursday. When volumes are low, price moves can be exaggerated. April crude settled unchanged at $99.70 a barrel after rising as high as $100.86 earlier.

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Oil prices are still within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

Two new economic reports Wednesday suggested the economy is cooling. The Labor Department said its Consumer Price Index, a measure of inflation, rose by 0.4 percent last month, more than economists expected. The Commerce Department, meanwhile, said construction of new homes and apartments rose by 0.8 percent in January, but that applications for building permits, an indicator of future activity, fell by 3 percent.

The reports come a week after the Energy Department, the Organization of Petroleum Exporting Countries and the International Energy Agency all lowered their oil demand growth forecasts for this year.

But the prospect that the Fed will reduce rates proved too strong, feeding a new buying frenzy, analysts said.

"This is all about momentum and driving (prices) higher right now," Flynn said.

Despite the return of $100 oil, and now $101 oil, there are concerns that high oil prices _ and the higher gasoline and heating oil prices they spawn _ are sowing the seeds of their own destruction by contributing to the economic slowdown.

"The price gains raise questions about their sustainability in the face of eroding fundamental strength," said Antoine Halff, an analyst a Newedge USA LLC in a research note.

At the pump, gas prices rose 2.1 cents to a national average of $3.053 a gallon Wednesday, according to AAA and the Oil Price Information Service. In it weekly survey, the Energy Department said regular gasoline rose 8.2 cents last week to an average of $3.042 a gallon. Retail gas prices, which typically lag the futures market, are following oil higher. Analysts and the Energy Department expect prices to peak this spring well above last May's record $3.227 a gallon.

Other energy futures fell Wednesday. March gasoline slipped 1.79 cents to settle at $2.5852 a gallon on the Nymex, while March heating oil fell 0.68 cent to settle at $2.7546 a gallon. March natural gas fell 1.2 cents to settle at $8.965 per 1,000 cubic feet.

In London, April Brent crude fell 14 cents to settle at $98.42 a barrel on the ICE Futures exchange.

Comments

[mmckinl]

Traditionally there are two low price points for the year, the move from summer driving season to winter heating season and then back again from heating to driving in the spring.

Last year there was no lull in the price going into the new year and no there is no lull in the price in the transition between heating and driving. Oil a year ago was around $55.

There is much more going on here than just the falling dollar or geopolitics. I am not convinced traders are spiking the price. They stand to lose as much as they gain should the price fall especially as oil hits $100.

Indeed what we might be seeing is peak oil or at least peak oil export supply. Many experts in the field have already called the top in 2005-06. If this is peak oil the powers that be are afraid as they have no answer to less oil- none. Without constant growth the banking system fails and with it the economy. Peak oil means less and less money to pay more and more debt or insolvency.

[Coyote2]

The new paradigm of the twenty first century is the monsters we face: Energy Scarcity (end of cheap energy) and Climate Change. How we respond to these challenges; where we succeed and where we fail will define the century.

Primarily we must shift from a growth-oriented economy to a recycling economy.

How do we do that?

[mmckinl]

In order to shift to a recycle economy we must go to a unleveraged credit currency, that is money that our government creates, that can only be loaned dollar for dollar by the banks. In this way the government can loan the money to banks based on merit of loan, that is the less socially important the more the interest. Consumption would be way down the list.

Banks would have to compete for savings accounts giving savers real returns on their savings above inflation so that savers are rewarded. We could turn a spendthrift into a thrift population.

Heavy taxes on consumption and rewards for recycling for corporations. All packaging and product should be made to be recycled.

These programs would be mostly carried out in the private sector. I believe capitalism would play an important role for investment and innovation in a more energy and natural resource efficient society.

[zephyrus]

Wow, am I sorry I missed this discussion with you. We've talked about solar before, right? Geeks like us just dig solar....

We recycled more in WWII than we do presently. That's just my gut feeling, but intuitively I think that statement is true. Think about all the sheer packaging, the extra SHIT we get around anything we buy. It's purely wasteful. How much of that packaging comes from petroleum? A good example of this---CDs are STILL packaged in plastic display holders (which are reused, I'll give you that) because retailers wanted to use existing LP displays. HOW LONG HAS IT BEEN SINCE YOU BOUGHT AN LP? And STILL they have those CDs in LP displays, still making displays that SAME height....­..uggg.

[clumberfeet]

A mad cow pees on a control panel at an oil refinery raising prices at the grocery store and gas station 15%.

The Labor Department reassures the public with the announcement inflation remains low at a steady 0.03%

[PierreLeClerke]

Leo Childs, I welcome the discourse, so lets be honest in it. The big Oil companies have traders on the floor of every crude market on the planet. They trade up their own products with big institutional buying power. The traders, as you know are not required to take physical possession of the commodity, and the same dam contract can be bought and sold several times and even passing through the same entity more than once. Than the big Oil Co. state, "Our cost at the refinery for the crude is X, that is the greatest factor in the cost of refined products". They fail to mention that they bought the crude from themselves. Just because the refineries operate under different corp. names, does not mean it isn't a shell game.
Please use your knowledge of the industry to try and bring about change for the good of the multitudes who continue to suffer at the hands of the few. I stand firmly behind the spirit of my earlier statements. My error of less than half a percent of the S.P.R. is regrettable, but does not change the basic foundation of the argument. Your position that continues to persist is that gasoline has not increased with the same percentage increase as crude. I never made that argument, but that fact alone speaks volumes to the reality that most gasoline feed stock (crude) comes from the same source that refines the finished product.
This fact supports what I submit as additional evidence that the basic crude price can and is manipulated by the producing/refining companies thus enabling them the ability to price finished goods according to what their perception of what the market will bare.

My chief position is that all finished goods, whether they be petroleum based of otherwise, are directly affected by the huge increase in the price of crude. even if you grow all your own crops and raise all of your own livestock, you cannot escape that fact. So please stop trying to take an untenable position.

[zephyrus]

In your view, do you see any possibility of stopping the manipulation of markets?

[PierreLeClerke]

Several possible solutions that require serious consideration; 1. Nationalize the Crude production Industry. Unrestrained Greed has pushed several Nations including all the OPEC Nations to do just that. This does not by itself solve the challenge of internal corruption and requires oversight and diligence on the part an Honest Government. 2. Require any entity trading in petroleum products to take physical possession of the commodity. This should eliminate trading paper contracts and driving the price up without true accountability. 3. Regulate the traders to create true transparency. This in conjunction with restrictions banning product owners from bidding up with straw. The use of front companies for price manipulation (straw) is the most widely used method presently. It should be a clear violation of the spirit of the Sherman Anti Trust Act, but with the Wholly owed subsidiary of the U.S. Executive branch with various Congressional field offices, the likelihood of prosecution by this Justice department is zero. Unrestrained GREED!

[PierreLeClerke]

People on the right boast about "Free Markets" a manipulated market is not free, it is fixed.

[mmckinl]

You should consider the peak oil scenario. After all the world's economies are slowing yet oil keeps going up.

[PierreLeClerke]

MSM, owned and operated by the Oil and Weapons Industry of the world. U.S. Gov. a wholly owed subsidiary of same.

[mmckinl]

What if they were lying about something much bigger, that is :peak oil !

If indeed we have reached peak oil that can mean only one thing, prices going up continually, for years, in real dollar terms.

[WIpatriot]

Indeed, mmc, what if they are lying about everything??

[zephyrus]

The thing about commodity futures is that when the price is sort of "hovering" none of the gamblers are making any money. There are gamblers out there that would love to go short on oil and drop the price of oil to get some windfall profits out of the speculators (fellow gamblers) that have driven the price up past $100/barrel. They've got all their little charts at the ready and when all of their nifty little red-pen marks look right, one could easily see a drop in the oil price too. That's counterintuitive of "peak oil" and other fundemental market analysis, but you can be assured that in a zero-sum game like commodity futures, while one gambler is betting on a price increase another "technical" trader will be betting the other way and one of the two will lose. In recent months we've seen mostly long strategies for oil and intuitively this makes sense based on our politics and perhaps limited supply of oil. However, human nature dictates that some will want to short the hell out of an over-priced market and make a quick buck. To me, that suggests that we are either not yet over-priced, or that the markets are not as "free" as we are led to believe (market manipulation by industry insiders).

If one looks at this from a fundemental point of view, consumers are about tapped out for what they can afford to pay for energy. The increased cost of energy also cuts the amount of consumption in other sectors of the economy (yes, we ARE in a recession.­..possibly on our way to a depression). As this progresses, we could easily see oil topping $120-130/barrel (looking in my crystal ball here) by the end of summer and consumers making a decision to drive less and consume less. In that instance, the charts for the technical traders will start look good for the short sale and we might possibly see a precipitous drop in the price of oil.

[zephyrus]

Demand has remained fairly steady for crude oil and inventories are high, so it isn't a surprise to some that the price is high since gamblers tend to go from one bubble to the next.

But, what do I know? It could rain Friday too.

[Macready]

this can only get worse

[txshldm0007]

Interesting to see NOTHING on the Main Stream Media for this event. No close captions, No live coverage. TOTAL media silence!!!!