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Oil crosses $129 for first time, heads for $130

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By ADAM SCHRECK / The Associated Press

Tuesday, May 20, 2008 - 11:32:04 am CDT

NEW YORK — Oil prices spiked to a new trading high Tuesday, sweeping toward $130 a barrel as supply concerns intensified the momentum buying that has lifted crude deeper into record territory. Gasoline, meanwhile, reached an average of $3.80 at the pump for the first time.

The June contract for light, sweet crude traded as high as $129.60 on the New York Mercantile Exchange before settling back to $129.43, up $2.38. The imminent expiration of that contract created additional volatility in the market, and raised the very real possibility that crude could hit $130 before the end of the day, when the contract was ending.

Oil’s trek toward $130 coincided with the Labor Department’s report of an unexpectedly sharp rise in wholesale inflation last month. The combination raised fears that inflation will slice into Americans’ discretionary spending, and that sent stocks falling sharply on Wall Street.

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Retail fuel prices also shattered records. The national average price for a gallon of regular gasoline touched $3.80, according to AAA and the Oil Price Information Service, while diesel jumped nearly 2 cents to a record $4.54 a gallon. Gas prices are up about 19 percent from this time last year.

Jim Ritterbusch, president of oil trading advisory firm Ritterbusch & Associates in Galena, Ill., said oil prices were being supported by strong demand for diesel fuel in Asia, and a weakening of the U.S. dollar against the euro, which makes oil cheaper for some investors overseas.

“We’re getting a combination of two price drivers this morning,” he said.

Oil prices are now about twice as high as the were just a year ago. Prices have been propelled by a number of factors, including supply concerns, soaring global demand and a sliding dollar.

Industry observers in recent days have also pointed to especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on generators for power. The country also seems to be ramping up diesel imports ahead of the Olympics, analysts say, driving up prices.

“They appear to stockpiling,” Ritterbusch said.

Crude’s latest surge comes after OPEC’s president was quoted as saying the cartel won’t increase its output before its next meeting in September, adding to lingering worries about global supply.

The contract reached a new closing high of $127.05 Monday after Algerian Energy Minister Chakib Khelil, the current president of the Organization of Petroleum Exporting Countries, was quoted by a government newspaper as saying OPEC won’t increase its output during the U.S. summer driving season, which begins this weekend. OPEC’s next meeting is scheduled for Sept. 9.

Through Monday’s close, the front-month contract has hit nine trading or closing records in 11 sessions. Analysts have said speculative buying has also contributed to oil’s record high run.

As oil prices reach new heights, so have gasoline and diesel costs.

“Average gasoline prices in the U.S. rose for an eighth straight week and for the 15th time this year, up 1.8 percent or 6.9 cents to a record $3.791 a gallon,” noted Stephen Schork in his Schork Report. “Gasoline at the pump is averaging 28.5 percent above last year’s pace.”

Drivers in some parts of the U.S. are paying considerably more, however. Gas pump prices in parts of California have been stuck above $4 a gallon for weeks now.

In other Nymex trading, heating oil futures rose 8.88 cents to $3.7639 a gallon while gasoline futures rose 5.2 cents to $3.2886 a gallon. Natural gas futures rose 32.3 cents to $11.277 per 1,000 cubic feet.

In London, Brent crude for July delivery added $2.16 to $127.22 on the ICE Futures Exchange.

———

Associated Press Writers Thomas Hogue in Bangkok, Thailand and George Jahn in Vienna, Austria contributed to this report.


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JAZZY wrote on May 20, 2008 1:39 pm:
" So, if the demand for fuels is greater in Asia, why are the american people paying for the excess used over there. I don;t quite understand.... I keep hearing about the US Govt not building any new refineries in this huge amount of years. Why do we build the new ones when the oil companies reap the profits. Don't the oil companies build there own from their profits....or do they just go on great trips. Someone explain this to me. Thanks "

 Lisa wrote on May 20, 2008 1:42 pm:
" Thank you LJS for finally reporting reasons our gas prices are going up. It's not just supply. "

 C wrote on May 20, 2008 2:43 pm:
" It is just way to easy for speculators to drive up the cost of items any more. Oil is such an in-elastic good (not a true direct correlation between supply and demand as there is no substitue) that its market needs to be regulated to prevent over speculation. If investors had to put up a decent margin (50% versus just 7-10%now) to buy a contract much of the volatility would go out of the price and we could get a real look at where the prices should be. When you can buy a contract as an investment and have no intention of using the oil but to just sell the contract again, it doesn't work right because you now not only have the demand for the use of the oil but the demand for oil as an "investment". Two factors on demand, we can cut our use of oil but it can be offset by the demand of it as an investment thus pushing prices higher and we have to pay whatever it costs. "

 MarkyMark wrote on May 20, 2008 3:04 pm:
" If you remember, this all started with the invasion of Iraq. That is the single biggest reason for our oil pain. "

 Warder wrote on May 20, 2008 4:18 pm:
" @MarkyMark

Not sure if you're being sarcastic or not, but it actually started when we invaded Afghanistan and created instability in the middle east. Our continued presence, Iraq war, declining dollar/huge deficit, and greedy oil companies have continued the upward climb. Oil has more than quadrupled in price since it started increasing heavily after 9/11/2001. "

 I Say wrote on May 20, 2008 4:19 pm:
" Stop all shipments of grain, metal, and anything else the u.s. supplies to the middle east. Hell, we can starve them out. What is wrong with doing this? I asked a senator from nebraska one time. His response was typical, we can't do that it would be unethical. guess what? What they are doing to the world is unethical. Paybacks can be hell. "

 Michael wrote on May 20, 2008 5:44 pm:
" America, get ready to see your fuel at $7 a gallon, it isn't too far away. It will affect your groceries and everything else that you buy and consume. The trucking industry cannot take anymore of the burden than what it has, so transportation prices will go up. Anything that is made with an oil byproduct will be going up even more so.
To the liberals that have blocked the drilling and building of new refineries: Way to go, hope your happy now. Let see how many trees you can save now, when people will be cutting them just to have heat in their homes. In your stupidity you have single handedly run this country into the ground economically. Hope your happy now that just about every other international currency is worth more than the American dollar is on the international market.
There is no short term fix for these problems caused by the pricing of oil. The only way that America will rebound is to start drilling and do it soon, along with expanding the refineries that we have and building new ones. Alternative fuels are a joke people. The only way the suppliers survive is through subsidies from the government. Using corn to make ethanol does nothing but drive up the prices in the grocery store on products made with corn.
Suck it up America...we are in for a recession like none other that we have seen. "

 Michael wrote on May 20, 2008 5:47 pm:
" To I say: I like the way you think, son. "

 To I Say... wrote on May 21, 2008 7:15 am:
" It's not only unethical...but you are naive to think that no one else would swoop in for containment of all that oil supply. Russia, China, India, and the rest of Europe would swoop in to secure and increase trading rights to their owl supplies, so no they would not starve, they'd start dealing in the Euro offsetting our dollar even more, and the U.S. would be on the brink of another economic depression. We just need to develop our own alternative fuel sources and build more energy efficient transportation systems for our cars, roads, power plants and buildings. During the nighttime you can see how easily we wast electricity...buildings that are closes and yet tons of lights are on. "

 To Michael... wrote on May 21, 2008 7:24 am:
" For the last 6 years all three branches of government have been controlled by the Republican party and yet count them: 0. ZERO permits have been filed by oil refineries to build new refineries. Currently though, oil companies have in fact expanded oil capacity at their refineries,however, we have still seen no drop in oil prices. It's not the liberals' fault, you can't solely blame them. It's everyone's fault, our own for not pushing the government to react sooner. Oil companies and government officials for not caring that the price of oil is skyrocketing. Oil Michael is a finite product, set to peak by 2035, meaning after that, the supply will rapidly dwindle, and then what? The fact is we will need an alternative fuel product that has the ability to take over the energy capacity that oil serves for us, and it will take less of a strain off the fact that oils are made in our plastics and pharmaceuticals...and what happens when the oil disappears altogether and we no longer have those life-saving methods. "

 Dano wrote on May 21, 2008 8:06 am:
" You can't dril your way to indpendence. Conservation should be a priority for everyone. Try carpooling once in a while, or riding a bike, or walking to the store if it is close enough (some of you need exercise).

the real cause isn't just all the reasons listed, it is also a result of speculation. Every day, those in the commodities market are making predictions on furutre cost, which is always higher than the month before, they are trying to protect themselves, but at the same time, they drive it up higher and higher, little by little. So thank the speculators for the increase as well, while you are blaming everyone but yourself. "

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