Gas hits $3.60 a gallon, crude nears $120 on supply outages
NEW YORK — Gas prices hit $3.60 a gallon and oil futures rose to their own new record near $120 a barrel on Monday as labor actions overseas threatened crude supplies. Oil prices later retreated to close up only slightly as the dollar stabilized against foreign currencies.
At the pump, the national average price Americans pay to gas up rose 0.4 cent overnight to a record $3.603 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. While prices are 66 cents higher than a year ago, their rate of increase has slowed some since last week, when prices jumped more than 2 cents a day several times.
That could suggest that a price peak is near, analysts said.
"I've got to think we're close to the end on increases," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Cambridge, Mass.
However, Lynch thinks prices could rise another 10 cents to 15 cents before they reach that peak and begin falling.
Gas prices are rising in part because refiners are making the seasonal switch-over from making winter-grade gasoline to the more expensive, but less polluting, fuel they must sell during the summer. Supplies tend to fall while refiners are doing this as they try to sell off all of their winter gasoline.
But short supplies of a key ingredient used in the manufacture of summer grade gas have contributed to the increases, as has an intentional slowing of gasoline production by many refiners due to low profit margins on the fuel. Refiners have to buy the crude they turn into gasoline and other fuels, and crude prices have risen much faster over the past year than gas prices.
Light, sweet crude for June delivery rose to a record $119.93 a barrel in electronic trading on the New York Mercantile Exchange overnight on concerns about supply disruptions in the U.K. and Nigeria. Prices later retreated to settle up 23 cents at $118.75 a barrel after the dollar stabilized against the euro.
When the dollar holds its ground, commodities such as oil become less effective hedges against inflation. Many analysts believe oil's meteoric rise from around $65 a barrel a year ago is due in large part to a protracted decline in the value of the greenback.
Energy investors will be closely watching the Federal Reserve's decision Wednesday on interest rates; lower rates tend to weaken the dollar. If, as expected, the Fed lowers a key interest rate by another quarter percentage point and signals that it will temporarily hold off on any future rate cuts, the dollar could strengthen, and oil might fall.
"A quarter point cut could suggest ... we're getting to a point where the dollar might bottom out," Lynch said.
An unexpectedly large cut, or a suggestion that rates might be cut further, however, could fuel oil to new heights.
Meanwhile, labor actions that cut crude supplies from the North Sea and Nigeria supported prices Monday. BP PLC on Sunday shut down the Forties Pipeline System that carries more than 700,000 barrels of oil a day to the U.K. because of a 48-hour walkout by employees at a refinery in central Scotland.
"With the refinery being shut down, it will affect supplies from the North Sea, and that has a potentially significant impact," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "That comes at the same time that there's production disruptions from Nigeria, so the combined effect of those is the immediate factor that's put pressure on oil prices."
In Nigeria, workers at an ExxonMobil Corp. joint venture cut production by an unspecified amount to demand more pay. The company notified clients it may not be able to meet its contractual obligations to supply oil, but said some production was not affected. Militant attacks on oil infrastructure have also cut production of Nigeria's light, sweet crude, which is easily refined. After years of attacks, Nigeria's output is dropping and the country can produce only about 75 percent of its official capacity of 2.5 million barrels per day.
In other Nymex trading Monday, May gasoline futures fell 2.3 cents to settle at $3.0307 a gallon, and May heating oil futures fell 0.4 cent to settle at $3.2988 a gallon.
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Associated Press writers George Jahn in Vienna, Gillian Wong in Singapore and Jamey Keaten in Paris contributed to this report.
JOHN WILEN | April 28, 2008 03:37 PM EST |
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