DanS.

Oil sets new record above $119 a barrel
Retail gas rises to a national average of $3.51 for first time
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Special coverage: Rising gas prices

updated 3:50 p.m. ET, Tues., April. 22, 2008
NEW YORK - Gas and oil prices pushed further into record high territory Tuesday, with retail gas reaching a national average of $3.51 for the first time and crude nearing $120 as the dollar fell to a new low against the euro.

At the pump, the national average price of a gallon of regular gas rose 0.8 cent Tuesday to $3.511, according to a survey of stations by AAA and the Oil Price Information Service. Prices for diesel — used to transport most food, industrial and commercial goods — also rose overnight to a new record of $4.204 a gallon.

Gas prices are nearly 66 cents higher than last year, when they peaked at a then-record of $3.23 in late May, and have prompted many analysts to raise their estimates of where gas is going to go.

“I wouldn’t rule out the possibility that we could get to $4,” said Antoine Halff, an analyst at Newedge USA LLC.

Other analysts are less certain. Fred Rozell, retail pricing director at the Oil Price Information Service, thinks gas prices will rise only another 10 cents to 20 cents nationally. That would mean they would peak near $4.15 a gallon in California, where prices are typically highest, and around $3.50 in New Jersey, where they’re typically lowest.

Gas prices are rising for many reasons, including oil’s record run. Light, sweet crude for May delivery rose to a new trading record of $119.90 before retreating to settle up $1.89 at a record $119.37 a barrel on the New York Mercantile Exchange. The contract expired after the Nymex closed, which contributed to its spike higher as investors scrambled to square bets. June crude futures, which now become the focus of trading, rose $1.44 to settle at $118.07 a barrel, nearly $2 shy of the $120 level.

Many investors see commodities such as oil as a hedge against inflation and a falling dollar. Also, a weaker greenback makes oil cheaper for investors overseas.

The dollar fell Tuesday after the National Association of Realtors said sales of existing homes dropped in March while the median home price declined, raising prospects that the Federal Reserve will cut interest rates further this year to try to shore up the ailing economy. Fed interest rate cuts tend to further weaken the dollar.

Oil also rose on concerns about supply constraints overseas. A Royal Dutch Shell PLC joint venture declared what’s known as force majeure on April and May oil delivery contracts from a 400,000-barrel-a-day Nigerian oil field due to a pipeline attack last week. The move protects the company from litigation if it fails to deliver on contractual obligations to buyers.

In Mexico, oil production slipped 7.8 percent in the first quarter to 2.91 million barrels a day as output at the country’s oil fields waned, state oil company Petroleos Mexicanos said. In Scotland, workers at Ineos PLC’s 196,000 barrel-a-day Grangemouth refinery and petrochemical plant threatened to strike over changes to an employee pension plan.

While gas prices are following oil futures higher, they’re also rising because supplies are falling. Refiners are in the process of switching over from making winter grade gasoline to the more-expensive, less-polluting, form of the fuel they’re required to sell in summer. That’s pushing supplies down as producers try to sell off all of their winter gas.

Gasoline supplies are also being hurt by low profit margins. Refiners have to buy the crude they turn into fuel, but falling demand for gasoline has hurt their ability to raise gas prices as much as they would like. While the average profit margin on gasoline hovers above $10, analysts say margins have gone negative in some parts of the country in recent weeks. In those cases, refiners were actually losing money on every gallon of gas they made. Many refiners have reacting by producing less gas.

“Very high crude prices can constrain gasoline supplies as it hurts the margins,” Halff said.

In other Nymex trading Tuesday, May gasoline futures rose 3.73 cents to settle at $3.0164 a gallon after earlier rising to a trading record of $3.025, while May heating oil futures rose 0.55 cent to settle at $3.3169 a gallon after earlier rising to their own trading record of $3.35. May natural gas futures fell 12.6 cents to settle at $10.607 per 1,000 cubic feet.

In London, June Brent crude rose $1.52 to settle at $115.95 a barrel on the ICE Futures exchange.

Oil sets new record above $119 a barrel - Oil & energy - MSNBC.com

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Second Verse, Same as the First

OldManOnFire

In the USA we have built societies that all pretty much look the same. Major downtown areas filled with commercial and some residential, further out is more commercial plus industrial and some residential, and 'way out of town' are located tens of thousands of residential units. We have created systems that REQUIRE long commutes in every direction of the compass. Sure a couple of towns in the USA are trying to do better, but 99% of our metropolitan areas are pretty much as I described. Then we have tens of thousands more 'rural' cities with most all necessities located within small town limits, and people living in rural homes REQUIRE long trips into town.

In metropolitan areas, mass transit works for some but not for most. In rural areas there is little to no mass transit. There is no way possible, at least for 50-100 years, that our cities can be rearranged to provide alternative transportation to our personal automobiles.

Further, we have unemployment issues and are in a recession today just over a little credit crisis and some foreclosures. Can you begin to imagine the economic down-spin of even trying to eliminate automobiles, car dealers, repair centers, gas stations, car manufacturing, the millions or billions of businesses today that are only reached via personal transportation, etc. etc. etc????

None of this is easy which is exactly the reason why it will take a century to attack and by this time who knows what state global climate might be in??

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Did you know both our problems and the solutions can be found simply by looking in our mirrors...and...Never confuse the extraordinary stuff I think and write with that of a well-balanced person...

cheapseats

Unless I am confusing you with another poster...in which case I apologize, in advance...you ran into a bit of illogic on your home mortgage wherein a perfectly sound proposal for resolution, made by you of the economic theory, fell on deaf ears.

That would be because free market theory goes out the window in a manipulated and regulated market, which is what we have.

Again and again, you apply laissez faire capitalism to a market that isn't free.

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DanS.

must be..because I don't know what you're talking about.

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Second Verse, Same as the First

cheapseats

Accept, then, that apology I mentioned.

But you DO apply laissez faire capitalism to a market that isn't free.

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DanS.

I don't think so....but even if I did, the ideas have to start from somewhere in economic theory....otherwise it's just rhetoric.

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Second Verse, Same as the First

OldManOnFire

Taken directly from California Energy Commission website:
California Gasoline Price Increases Q&A

Why not just tell the oil companies to lower their prices? Why can't government do something about the prices?

Ronald Reagan removed regulations on oil companies and petroleum prices when he was President. Since then, gasoline prices have been dictated by supply and demand and free market economics. There are no government controls on the price of oil or gasoline. So, government cannot tell gasoline companies to hold their prices at one level or to decrease them.

Does a free market really exist with gasoline? It seems all the gasoline stations sell at the same price.

This is untrue. There are differences between stations and prices. Some stations have lower prices because they typically do not take credit cards - they take only cash or ATM cards. Credit cards can add about two to three percent to the cost of the transaction. This extra cost is passed on to the customer in higher prices at the pump for the convenience of using a credit card. Other stations, such as independents and so-called "Mom and Pop" stations usually have lower prices because they do not have multi-million dollar advertising campaigns to convince you to buy their product. So, their prices usually are lower than the "name brand" stations.

The independents and non-branded stations buy gasoline usually on what's called the unbranded "spot" market. This is the wholesale market that is most vulnerable to refinery problems and the fluctuating cost of crude oil. The price is normally lower than the branded wholesale prices. But we can have unbranded prices soar higher than branded prices when the supplies get tight. So, the independents and "Mom and Pop" stations sometimes will have to price their gasoline higher than branded stations.

Aren't the oil companies all in collusion to set their prices at the same level? Aren't they all price fixing?

Rumors and charges of collusion among the oil companies have been raised for decades with nothing ever proven. Investigations have been undertaken by California Attorney General and by federal authorities looking into these allegations.

Why do the gasoline stations raise their prices almost daily, and it seems like they sometimes do it hourly?

Prices are set by what the station owner will have to pay for the NEXT delivery of gasoline. If prices are going up on the wholesale level, the station operator has to pay for what the next shipment will cost when it's delivered. If the delivery is going to cost more than what the dealer is charging at the pump now, they are going to lose money on the higher-priced new gasoline. So, the dealer has to increase his price whenever there is an increase in the wholesale price of the fuel to pay for that more expensive gasoline in the future.

But sometimes, station owners will hold down their price increases in order to remain more competitive with other stations, temporarily costing them money. This can be especially true for independent service station owners during period of rapid wholesale price increases.

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Did you know both our problems and the solutions can be found simply by looking in our mirrors...and...Never confuse the extraordinary stuff I think and write with that of a well-balanced person...

cheapseats

As in, government is our ethical and competent friend, therefore it's information is reliable?


Government has no bearing on the oil industry? Good one.



Rumors, Charges & Investigations R Us.

Are you suggesting that, if government exonerates business, we should be satisfied that nothing is amiss?

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Malkavian

Of course not... Again, Europeans have been paying much more for a long time, and survived. Since American way is so much more wasteful, there's plenty of easy ways to save... See Old Man's post on carpool etc. So even at $7-$8/gal there will be ways to keep personal costs down. Plus, it takes time for price hikes to sink in... I won't be buying a hybrid tomorrow, but when eventually i will go car shopping, i most certainly will keep the price of gas in mind.

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Woof!

Malkavian

Exxon doesn't care to lower prices, but that is only sensible... When the prices were low, did anybody care about Exxon's mediocre performance? Outside of the shareholders, i mean. Their position for their size is fairly reasonable... They don't want to rock the boat while the going is good. This may cost them leverage in the future, but then again, maybe not... They might simply acquire alternative energy company if that really takes off.

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Woof!