Oil hits record, nears $140
JOHN WILEN
Monday, June 16, 2008
NEW YORK — Crude oil futures hit a record near $140 (U.S.) a barrel Monday as investors shrugged off Saudi Arabia's promise to boost production and instead focused on a weaker U.S. dollar. Retail gas prices rose to a record $4.08 a gallon.
Light, sweet crude for July delivery soared to a trading record of $139.89 before retreating to trade up $2.10 at $136.96 a barrel on the New York Mercantile Exchange.
Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is a major factor behind oil's doubling in price over the past year.
The euro bought $1.5502, a sizable increase from $1.5354 late Friday in New York. The British pound rose to $1.9668 versus $1.9469 in New York.
Also supporting prices was an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.
But prices of North Sea-produced Brent crude oil, while higher, were lagging Nymex crude's advance, suggesting to analysts that the dollar was the main driver of Monday's rally. In London, August Brent crude futures rose $1.91 to $137.02 a barrel.
“We have a weaker U.S. dollar, and the buyers are out in force right now,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
Saudi Arabia, the world's largest oil producer, told UN chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2 per cent, from June to July. In May, the kingdom raised production by 300,000 barrels a day.
The latest promise of a production increase by the kingdom was largely ignored by traders Monday amid strong global demand and falling production elsewhere.
“Saudi Arabia's proposed output addition will only go some way in offsetting the significant output losses in other OPEC nations like Nigeria,” said Barclays Capital analyst Kevin Norrish in a research note.
Mr. Cordier said Saudi Arabia has “to increase by north of 1 million barrels per day” to have an impact on prices, “and the market doesn't think they have it.”
Saudi production hikes can actually push oil prices higher by stoking concerns about spare oil capacity — the reserves Saudi Arabia holds out of production in the event of an unexpected global supply shortfall.
According to the International Energy Agency, OPEC spare capacity fell below 2 million barrels a day in May for the first time since 2006. The majority of that — about 1.45 million barrels a day — was in Saudi Arabia.
At the pump, meanwhile, the national average price of a gallon of gas rose 0.3 cent overnight to its latest milestone, according to AAA and the Oil Price Information Service. Gas prices are following crude prices higher, and likely have several more cents to rise before catching up with oil's latest advance.
If oil prices pass $140 and head even higher, the pain consumers are feeling at the pump will intensify.
Diesel fuel prices held steady Monday at a record $4.797 a gallon. High prices for diesel, used to transport most of the world's food, are pushing food prices higher, putting even more pressure on consumers.
In other Nymex trading, July gasoline futures rose 3.58 cents to $3.4984 a gallon, while July heating oil futures rose 7.57 cents to $3.9125 a gallon.
July natural gas futures rose 29 cents to $12.915 per 1,000 cubic feet.
Anadarko Petroleum Corp. said Monday that natural gas production from a project in the deep waters of the Gulf of Mexico has been restored, hitting a gross rate of about 900 million cubic feet per day. Output from the Independence Hub was halted April 8 after a pipeline leak was found.
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