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Oil rises on ECB president’s comments Analysts believe global demand may have reached plateau, forcing prices down; gas prices continue to rise as profit margins shrink The Associated Press
Oil prices rose on June 5 after the dollar fell in response to comments by European Central Bank President Jean-Claude Trichet suggesting the bank could raise interest rates. At the pump, meanwhile, gas prices nationally rose to a new record near $3.99, and are likely to hit $4 soon. Gas prices in Anchorage have hovered around $4.10 a gallon.
Light, sweet crude for July delivery rose $1.86 to $124.16 on the New York Mercantile Exchange after falling more than $5 since last Friday. The delivered price of Alaska North Slope crude oil closed on June 4 at $122.30 a barrel, down $2.01 for the day.
Trichet spoke after the ECB left a key interest rate unchanged amid concerns about inflation. While Trichet said a change in rates was not a certainty, he said some of the bank’s governors favor an increase.
“Oil, which was very weak, rallied on those comments,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. “They’re out of step with the U.S., which is weakening the dollar.”
More interest rate cuts unlikely Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S. Bernanke’s comments sent the dollar higher, helping push oil prices lower.
When rates rise in Europe, or fall in the U.S., the dollar tends to weaken against the euro. Many investors buy commodities such as oil as a hedge against inflation when the dollar is falling. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies.
Many analysts believe the dollar’s protracted decline has been a major reason why oil prices have nearly doubled from year-ago levels. Oil’s rally has pushed gas prices to record levels.
Gas prices continue to rise The average national price of a gallon of gas rose 0.6 cent overnight to a record $3.989 on June 5, according to a survey of stations by AAA and the Oil Price Information Service. Prices have not fallen since May 6, AAA records show, and are likely to continue rising for at least a while before eventually turning lower.
“We may still get to $4 in the next couple of days, but I do think ... it’s just a matter of time before the retail price starts to stall and maybe move lower,” said AAA spokesman Geoff Sundstrom.
Gas prices are higher than $4 in many parts of the country including Alaska, and average more than that in 13 states and the District of Columbia.
Diesel prices are already falling; the average national price of a gallon of diesel slid 0.8 cent overnight to $4.77 on June 5, according to AAA and OPIS, though prices are above $5 a gallon in some areas. Diesel prices peaked at a record $4.792 on May 30, and have risen $1.87 in a year due mostly to rising demand for the fuel in the developing world. High diesel prices have boosted prices of food and consumer goods transported by truck, ship and rail, putting additional pressure on families already struggling with $4 gas.
Demand cuts lead to price drop Following global trends based largely on concerns about demand, the price of Alaska crude has been falling steadily since peaking at $131.59 on May 23. Recent Energy Department data shows high prices have led to cut their gasoline consumption.
In its weekly inventory report, the U.S. Energy Department’s Energy Information Administration said American demand for gasoline dipped 1.4 percent over the last four weeks. Meanwhile, gasoline inventories rose by 2.9 million barrels last week, more than three times the increase analysts polled by energy research firm Platts had expected.
Concerns about demand have helped pull oil down nearly 10 percent from its May 22 high of $135.09. Those concerns were exacerbated on June 4 by the EIA report and by moves by India and Malaysia to cut fuel subsidies, effectively raising their retail prices for everything from gasoline to cooking gas. Many investors believe subsidy cuts will choke off demand for fuel in the developing world.
“There’s definitively smaller demand, (and) you have subsidies that are going to fall in energy consuming nations,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. “The psychology is just changing.”
India announced increases that, for example, would boost gasoline prices in New Delhi by 11 percent. Malaysia said it would hike gasoline prices by 41 percent and electricity for commercial and industrial users by 26 percent.
The EIA also said inventories of distillates, which include diesel and heating oil, rose by 2.3 million barrels. Investors shrugged off an unexpected decrease in crude oil inventories.
Many analysts have long questioned whether high oil prices could be sustained; many blame speculative investing fueled by the falling dollar for a near doubling of crude prices over the past year.
A weakening dollar can spur investors to buy oil and other commodities as a hedge against inflation, but the effect tends to reverse when the dollar strengthens. A stronger dollar also makes oil more expensive to buyers dealing in other currencies.
Recently, with some fluctuations, the dollar has been gaining against the euro and yen as U.S. economic data supports the view that the Federal Reserve isn’t likely to cut its key interest rate further. In Asian currency trade later afternoon in Tokyo, the dollar was above 106 yen, while the euro was changing hands around $1.54.
Among other main factors cited for sustained high prices over the past year is the unexpected declines in production from some of the world’s key exporters, particularly Russia, Venezuela and Mexico.
Prices prompting changes for governments, industry Meanwhile, many Asian nations are cutting fuel subsidies, effectively raising prices. Automakers are cutting production of gas-guzzling SUVs and trucks, and airlines are cutting capacity, both due to high fuel prices.
“There’s a lot of empirical evidence that demand has plateaued,” Sundstrom said.
Still, gasoline refiners, wholesalers and retailers are feeling pressure to keep prices high, for now. Crude prices have risen 89 percent in the past year, while gas prices are up only 27 percent. That discrepancy has pressured profit margins along the gasoline supply chain; falling demand has prevented gas suppliers from raising prices as much as they would like.
In many cases, retailers are selling gas at a loss, relying on sales of convenience store items to generate income, analysts say.
“One would have to think that they’re very reluctant to bring down the price of gas when their overall business is under pressure,” Sundstrom said.
In other Nymex trading on June 5, July gasoline futures rose 4.03 cents to $3.2354 a gallon while July heating oil futures rose 6.29 cents to $3.6087 a gallon. July natural gas futures rose 0.2 cent to $12.381 per 1,000 cubic feet. The Energy Department said natural gas inventories rose by 105 billion cubic feet last week, near the high end of the range of analyst estimates.
In London, July Brent crude futures rose $1.63 to $123.73 a barrel on the ICE Futures exchange.
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