Oil surges past $120 on supply concerns
Pastor Dale Morgan
Oil surges past $120 on supply concerns*
Monday May 5, 6:13 pm ET
By John Wilen, AP Business Writer
Oil surges past $120 on supply concerns; Gas prices have slid more than
a cent since Friday
NEW YORK (AP) -- 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 $120.36 a
barrel on the New York Mercantile Exchange before futures retreated
slightly to settle up $3.65 at a record $119.97.
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. Americans are also being pinched by tight credit
conditions, a sluggish jobs market and a downturn in the housing market.
"American consumers are being hit hard financially from a bunch of
different directions," said Troy Green, a spokesman for AAA.
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.
But if oil prices continue climbing, gas prices could rise as high as
$3.75 a gallon on a national basis, Green said, though, "in some places,
it's already above $4 a gallon."
In most years, gas prices peak in May or early June, then mostly decline
for the rest of the year. But oil at $120 -- and rising -- may force the
experts to rewrite their rulebook.
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 Federal Reserve 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.
In Iraq, 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. 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. And Iran's Supreme Leader Ayatollah Ali
Khamenei said his country will not bend to international pressure and
give up its nuclear program.
Energy investors grow concerned any time conflict breaks out or is
threatened in the oil-rich Middle East. Years of unrest in Nigeria have
cut off nearly a quarter of the major U.S. supplier's oil output.
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.
Diesel prices fell Monday, 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.
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.
"If the price of oil remains this high, we could see the price of gas
rise another 10 to 15 cents," Green said.
It's impossible to tell whether gas prices will fall this summer, as
they have in the past, Green said. However, he noted that demand for
gasoline has fallen since early this year, a sign that high prices are
cutting Americans' appetite for fuel. Analysts believe falling demand is
preventing refiners from raising gas prices fast enough to keep up with
oil prices, which they much buy to turn into fuel. While oil prices have
risen nearly 94 percent in one year, gas prices are up only 19 percent.
In other Nymex trading Monday, June gasoline futures rose 8.65 cents to
settle at $3.0529 a gallon, and June heating oil futures rose 8.78 cents
to settle at $3.3065 a gallon. June natural gas futures rose 40.1 cents
to settle at $11.178 per 1,000 cubic feet.
In London, June Brent crude futures gained $3.43 to settle at $117.99 a
barrel on the ICE Futures exchange.
Associated Press Writers Yahya Barzanji in Iraq, George Jahn in Vienna
and Gillian Wong in Singapore contributed to this report.