Crude futures hit new highs. The weak dollar, stormy weather in the Gulf of Mexico and other factors are cited.
Los Angeles Times
Hold on to your wallets.
Oil cruised to another record high Monday and gasoline prices rose to their highest levels since the summer driving season in California and the U.S., strongly influenced by a weak U.S. dollar and troubling events in many parts of the world, analysts said.
Crude oil for December delivery traded as high as a record $93.80 a barrel on the New York futures market before settling at an all-time closing high of $93.53, up $1.67.
Analysts said fundamentals weren’t to blame.
“There is no shortage of oil. Demand is weak and it will continue to be weak,” said Fadel Gheit, senior energy analyst at Oppenheimer & Co.
But oil is traded in dollars, and the U.S. currency has continued to sink against most other major currencies in recent weeks. A weak dollar makes oil even more attractive to investors because it makes the commodity cheaper in other currencies.
Traders also reacted to news that Mexico’s state-owned oil company shut down about 20% of its daily crude oil production, or 600,000 barrels a day, because of stormy weather in the Gulf of Mexico. That came one week after rough seas were blamed in the deaths of more than 20 offshore oil workers there.
Escalating tensions between Turkey and Kurdish rebels on both sides of its border with Iraq were also cited, with as many as 100,000 Turkish troops massing for a possible incursion. Other analysts cited the threat of more unrest in Nigeria, where six workers at an Italian oil facility were kidnapped last week.
“Right now all of the bullish things are happening at the same time, but I think there will be a correction before we reach $100 a barrel. In the meantime, it is hard to find a reason for these guys to take profits,” said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.
Others aren’t so sure.
“The oil market may be only one or two events away from $100-plus oil,” said Daniel Yergin, chairman of Cambridge Energy Research Associates and author of “The Prize,” a Pulitzer-winning history of the oil industry.
“Oil prices are becoming increasingly decoupled from the fundamentals of supply and demand,” Yergin said at a conference Monday at Georgetown University in Washington. “With prices over $90 a barrel and strong anticipation of $100, the oil market is showing signs of high fever, stoked by fears of clashes in the Middle East and resulting disruptions of supply.” The most likely cure for the fever, he said, would be an economic slowdown, which would dampen demand for oil.
Oil market critics took the system to task for ratcheting up the worst-case-scenario fear premium at the expense of consumers.
“Speculation is largely to blame. The victims, as usual, are ordinary motorists and people using petroleum products to heat their homes as winter approaches,” said Judy Dugan, research director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.
The rising price of oil has been showing up quickly at the pump. The U.S. average price rose 4.9 cents to $2.872 for a gallon of self-serve regular, its highest level since Aug. 6, the Energy Department said Monday. In California, drivers paid an average of $3.159 a gallon, up 1.6 cents, the highest since late June.
“The prices are supposed to come down before the holidays,” said downtown Los Angeles resident L.B. McGowen, 36, as he watched $10 translate to slightly more than three gallons of gas for his bronze, late model Cadillac DTS. A sign at the Shell station at Grand Avenue and Olympic Boulevard told him the price was $3.199 for a gallon of regular.
McGowen is the health and fitness director at the Watts/Willowbrook Boys and Girl Club. He’s also a personal trainer who used to drive as far as Santa Monica to see clients, but not since gas prices began to rise again.
“Now, they have to come to me,” McGowen said.
But McGowen’s experience at the pump might be worse by spring even if there is a sharp drop in oil prices, said one expert.
It’s the older and lower priced oil that is being processed at the nation’s refineries right now, said John Silvia, chief economist at Wachovia Corp.
As more expensive oil makes its way to refineries, retail gasoline prices will head higher, he said. Oil accounts for about half the price of gasoline at the pump.
“The timing of this is part of the concern. We should not be having anything like this at this time of the year,” Silvia said.
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