Oil surpasses $126 per barrel
Pastor Dale Morgan
Oil surpasses $126 per barrel *
May 9 09:51 AM US/Eastern
By PABLO GORONDI
Associated Press Writer
Oil prices surpassed a record $126 per barrel Friday on the eve of the
U.S. driving season as a weakening dollar drove investors to snap up
commodities.
Light, sweet crude for June delivery rose $2.51 to a new record of
$126.20 a barrel in electronic trading on the New York Mercantile
Exchange by the afternoon in Europe.
On Thursday, the contract rose to a record close of $123.69 a barrel.
In London, Brent crude contracts also hit record highs before slipping
and traded up $2.98 on the day at $125.82 a barrel on the ICE Futures
exchange. Earlier Friday, Brent had reached $125.90 before falling back.
On Friday, The Wall Street Journal published a report that suggested
closer ties between Venezuelan President Hugo Chavez and rebels
attempting to overthrow Colombia's government, heightening chances that
the U.S. could impose sanctions on one of its biggest oil suppliers as a
state sponsor of terror.
Chavez has been linked to Colombian rebels previously, but the paper
reported it had reviewed computer files indicating concrete offers by
Venezuela's leader to arm guerillas.
"If we put on sanctions I'm sure Chavez would threaten to cut off our
oil supply," said Phil Flynn, an analyst at Alaron Trading Corp.
"Obviously that would have a major impact on oil prices."
Even if Chavez cut oil shipments to the U.S., Venezuela would still pump
and sell oil, Flynn said. And much of that oil would come to the U.S.
via middle men, who would buy it from Venezuela and resell it to the
U.S. But that new layer in the supply chain would bump up costs, he said.
The European Central Bank also indicated that it was unlikely to
consider interest rate cuts to cool the strong euro against the slumping
dollar.
By the afternoon in Europe, the euro stood at $1.5444 compared to
$1.5404 in late trading Thursday night in New York. The dollar was also
weaker Friday against the British pound and the Japanese yen.
Investors view commodities such as oil as a hedge against inflation, and
some analysts think the dollar's protracted decline is the main reason
behind oil prices doubling from a year ago. Also, a weaker dollar makes
oil cheaper to investors overseas.
A prediction by analysts at Goldman Sachs seeing oil rising as high as
$150 to $200 a barrel within two years also has boosted prices.
Analysts, however, struggled to explain the continued rise of oil
futures after a larger-than-expected buildup of crude oil stocks
reported Wednesday in the United States.
"Crude oil is currently held up in a tug-of-war between the Goldman
reality and the physical reality," said Olivier Jakob of Switzerland's
Petromatrix in a research note, adding that the investment bank's
prediction made for "a great story to support pension funds piling more
into commodities."
Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne,
Australia, said it may be a combination of continued wariness over
potential supply disruptions as well as prospects for a strengthening in
crude demand heading into the U.S. summer driving season.
"U.S. gasoline stocks have certainly dropped quite sharply over the last
month," he said. "What'll happen in the near term is that we may likely
see an uptick in U.S. refining capacity to rebuild gasoline stocks and
we may see a short-term build in crude demand as a result."
Prices may also be getting a boost from comments Thursday by the OPEC
secretary general.
Abdalla Salem El-Badri on Thursday said again that oil supplies are
adequate, and that several member countries are having a hard time
finding buyers for their additional supplies.
In other Nymex trading, June gasoline futures rose 4.04 cents to $3.1782
a gallon, while heating oil futures rose 7.68 cents to $3.5866 a gallon.
Natural gas futures rose 14.5 cents to $11.408 per 1,000 cubic feet.
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AP Business Writers Thomas Hogue in Bangkok, Thailand, and John Wilen in
New York contributed to this report.