Oil futures pass $120 on threats to supply
Posted on Tuesday, May 6, 2008
NEW YORK — Oil futures surged to a record of more than $ 120 a barrel Monday, raising concerns about higher prices for gasoline and goods and services throughout the economy. Retail gas prices fell more than a cent over the weekend, but oil’s advance increased the likelihood that pump prices will resume their climb.
Supply threats that emerged overseas and a weaker dollar sent light, sweet crude for June delivery to a new trading record of $ 120. 36 a barrel on the New York Mercantile Exchange before futures retreated slightly to settle up $ 3. 65 at a record $ 119. 97.
The average national price of a gallon of regular gas slipped to $ 3. 611 a gallon Monday, down 1. 1 cents from Friday, according to AAA and the Oil Price Information Service. Prices reached a record $ 3. 623 a gallon Thursday.
Arkansas gasoline prices averaged $ 3. 482 per gallon, down 2 cents from the state record set Thursday, AAA reported Monday.
Meanwhile Monday, data showing an unexpected expansion in the service sector in April raised hopes that the economy will be spared a sharp downturn even though many observers feel it is already in a mild recession.
The service sector report by the Institute of Supply Management showed a better-than-expected reading of 52 for April, up from 49. 6 in March.
A reading above 50 indicates the sector is growing, while a reading below 50 indicates contraction. The index had been below 50 for the previous three months.
The services sector accounts for almost 80 percent of the nation’s economy.
Oil’s sharp rise this year has driven gas prices to unprecedented levels, prompting consumers to reconsider summer vacation plans and limit daily excursions; they’re also spending less at malls and shopping centers because they’re paying more not just for fuel, but for all kinds of goods and services. Americans are also being pinched by tight credit conditions, a sluggish jobs market and a downturn in the housing market.
“American consumers are being hit hard financially from a bunch of different directions,” said Troy Green, a spokesman for AAA.
If oil prices continue climbing, gas prices could rise as high as $ 3. 75 a gallon on a national basis, Green said.
In most years, gas prices peak in May or early June, then mostly decline for the rest of the year. But oil at $ 120 may force the experts to rewrite their rule book.
The mix of factors that drove oil to its latest record were a microcosm of the forces that have nearly doubled oil prices from their levels of about $ 62 a barrel one year ago. The dollar weakened against the euro Monday, attracting investors to commodities such as oil, which they see as a hedge against inflation. Also, a falling dollar makes oil less expensive to investors overseas. A series of Federal Reserve rate cuts starting last year weakened the dollar considerably against foreign currencies; analysts blame the dollar’s protracted decline for oil’s sharp rise this spring.
Supply failures or threats emerged in Iraq, Nigeria and from Iran on Monday; events in all three nations have caused prices to spike many times in recent months.
In Iraq, Kurdish rebels warned they could launch suicide attacks against American interests to punish the U. S. for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. In Nigeria, a Royal Dutch Shell PLC spokesman said attackers hit an oil facility belonging to Shell’s joint venture in southern Nigeria and that some oil production has been shut down. And Iran’s Supreme Leader Ayatollah Ali Khamenei said his country will not bend to international pressure and give up its nuclear program.
Energy investors grow concerned when conflict breaks out or is threatened in the oil-rich Middle East. Years of unrest in Nigeria have cut off nearly a quarter of the major U. S. supplier’s oil output.
Beyond the occasional threats to crude supplies, global demand for oil continues to grow. While demand for oil and gasoline has been soft in the U. S., the Chinese and Indian economies are growing by double digits, boosting global demand for oil.
Diesel prices fell Monday, slipping to a national average of $ 4. 239 from a record $ 4. 251 on Thursday. Information in this article was contributed by Ellen Simon, Yahya Barzanji, George Jahn and Gillian Wong of The Associated Press.
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