Oil prices soar after Energy Department report
June 11, 2008
NEW YORK (AP) -- Oil prices soared Wednesday as the dollar fell and the Energy Department issued a mixed report on the nation's fuel inventories. At the pump, gas prices rose to a new record over $4.05 a gallon.
The department's Energy Information Administration said oil inventories fell more than expected last week, and that gave oil a kick upward. But prices eased back to their pre-report levels as traders read further into the EIA's release and found that supplies of fuel such as gasoline and heating oil rose and demand fell.
Light, sweet crude spiked up nearly $5.50 to $136.80 a barrel soon after the report's release, then retreated to trade up $3.06 at $134.37 a barrel on the New York Mercantile Exchange.
The dollar's travails again sent oil prices rising. The euro bought $1.5539, up from $1.5449 Tuesday. Oil prices have closely tracked dollar moves; prices rose sharply last week when the dollar fell, then retreated more than $7 earlier this week as the dollar gained ground.
Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is the primary reason oil prices have doubled over the past year.
The EIA said oil inventories fell by 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels.
But other elements of the report were considered bearish for prices, and pulled oil off its earlier highs. Supplies of gasoline and distillate fuels such as diesel and heating oil both rose last week, and demand for gasoline fell by 1.3 percent.
Retail gas prices, meanwhile, rose to another record Wednesday, rising 0.9 cent overnight to a national average of $4.052, according to a survey of stations by AAA and the Oil Price Information Service. Prices continue rising, despite falling demand, because the price of oil keeps moving higher.
While oil prices have slipped some from last week's trading record of $139.12 a barrel, analysts say gas prices still have some catching up to do, and could rise another nickel or so. Of course, if oil futures blast past that record and reach new highs, gas prices will likely rise even higher.
Also supporting oil prices Wednesday was Royal Dutch Shell PLC's decision to extend force majeure on some Nigerian oil shipments, a legal declaration that means the company can't meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.