Oil climbs to new record above $142 a barrel

The associate Press

Dollar’s slump prompts investors buy oil as hedge against inflation

SINGAPORE - Oil prices climbed to a record above $142 a barrel Friday as the U.S. dollar’s protracted slump and falling stock markets prompted investors to take refuge in oil.

Prices were also lifted Thursday after OPEC’s president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production.

Light, sweet crude for August delivery rose as high as $142.26 a barrel before pulling back to $141.40, up $1.76 in electronic trading on the New York Mercantile Exchange by early afternoon European time. The contract Thursday rose $5.09 to settle at a record $139.64.

The previous trading record for a front-month contract was $139.89, set on June 16.

The rise follows a sharp fall in U.S. stocks on Thursday and in Asia on Friday. “We need to observe that financial flows were leaving the equity markets as those markets are breaking below their support levels,” said analysts at Petromatrix in Switzerland. “When money has nowhere to go, it is parked in commodities as it is one of the few investment instruments that actually rises the more money you pour into it.”

The dollar also slipped against key currencies, as U.S. data showed sluggish economic growth and pointed to a struggling labor market. Oil is priced in U.S. dollars, and some investors buy oil contracts to protect the value of their assets against accelerating inflation when the dollar falls.

“The dollar movements caused the surge in oil pricing and the bullish trend remains intact,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “The oil market is subject to further spikes in the coming weeks.”

On Friday, the dollar was unchanged in early afternoon European trading, with a euro buying $1.5782.

Also driving crude futures higher were remarks by Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, who said Thursday he believes oil prices could rise to between $150 and $170 a barrel this summer. Khelil also said prices will decline later in the year, and aren’t likely to reach $200 a barrel.

Khelil joined a long list of forecasters who have made predictions of sharply higher prices this year. Each new forecast — such as Goldman Sachs’ recent prediction that prices could rise as high as $200 — causes a jump in prices as speculative buyers are drawn into the market.

Meanwhile, the head of Libya’s national oil company said the country may cut crude production because the oil market is well supplied, according to news reports.

Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut, said in a research note that Shokri Ghanem, the nation’s top oil official, has declined to say when a decision would be made on whether to lower production, or give any indication of the size of the cut under consideration.

But analysts expressed skepticism over the comments out of Libya, saying the current level of oil prices provides an incentive for producers not to cut output.

“I doubt that any real effort in cutting output would be forthcoming, considering that pricing continues to hit new records,” Shum said. “There’s no economic reason to cut output at this time so it’s just talk.”

Oil prices have more than doubled over the past year on concerns about rising demand in fast-growing economies such as China and India, and supply disruptions in the Middle East and Nigeria.

Analysts have also attributed oil’s rapid climb to speculative buying, with traders jumping into the market purely on the expectation that futures will continue to rise.

“Even though we have continued to see weakening demand in the U.S., other markets in the developing world still show growth,” Shum said. “The tight market has empowered speculators to invest in oil and the oil market is subject to further spikes in the coming weeks.”

In other Nymex trading, heating oil futures rose 6.55 cents to $3.9489 a gallon (3.8 liters) while gasoline prices rose 4.62 cents to $3.5575 a gallon. Natural gas futures rose 12.4 cents to $13.372 per 1,000 cubic feet.

Brent crude futures rose $1.32 to $141.15 a barrel on the ICE Futures exchange in London.

Markets Plummet as Oil Hits Record; New Automaker and Bank Fears

By ALICE GOMSTYN
ABC NEWS Business Unit
June 26, 2008

Stocks plummeted today as oil hit a new record and signs of trouble from the financial, automotive and high-tech industries soured the mood on Wall Street.

The Dow Jones Industrial Average lost more than 350 points, falling to its lowest level since September 2006. It closed at 11,453.42, a loss of more than 3 percent. The Nasdaq and S&P 500 also had bad days: the Nasdaq closed down 3.3 percent -- nearly 80 points -- at 2,321.37 while the S&P 500 closed down 2.9 percent at 1,283.15 after a loss of nearly 39 points.

Among the factors driving the drop:
After investment bank Goldman Sachs downgraded General Motors to a "sell" rating, the share price for the struggling automaker — and Dow component — plummeted to its lowest level since 1955. Major GM suppliers also saw their shares plunge.

Goldman Sachs also urged investors to lower their expectations of the financial sector, cutting Citigroup to a "sell" rating. The bank saw its shares drop more than a dollar by the late afternoon.

Blackberry-maker Research In Motion issued first quarter earnings results and a second-quarter outlook that missed analyst's expectations. Meanwhile, Oracle, another major player in the tech sector, posted a strong showing in its fourth-quarter results but released a disappointing first-quarter outlook.

Oil prices surged into record territory today, boosted by a report predicting that gas prices will hit $7 a gallon in the United States within two years. The market didn't like the news.

After an intra-day high of $140, oil closed at $139.65 a barrel. The new price represents a more-than-$5 spike from yesterday's close and was caused in part by statements by OPEC's president that a barrel of oil could soon be trading for more than $150 and reports that Libya is weighing cutting its oil production.

Investors also grew wary that the Federal Reserve would not raise interest rates until late this year, leaving little hope that the dollar with strengthen. Oil is traded in dollars and part of the run-up in oil prices has been attributed to the weak dollar.

$7 a Gallon Gas?

But today's oil price surge may pale in comparison to what some economists are predicting will happen in the near future. American motorists may soon find more pain at the pump thanks to a $3 spike in gas prices by 2010, according to a new report by economists at CIBC World Markets.

Economists at the investment bank predict that motorists will see the price of gas rise to $7 per gallon within two years, a 75 percent increase.

CIBC Chief Economist Jeff Rubin contrasted the expected price surge with those that occurred during the 1970s and 1980s OPEC oil shocks.

"Back in '73 and '79 [to] '81, somebody turned off the spigot," Rubin told ABC News.

Today, he said, "the spigot is wide open — the problem is not enough is running through it relative to world demand."

The CIBC report said that Saudi Arabia's pledged 200,000 barrels per day oil production increase and China's reduction of subsidies for domestic fuel prices will not do enough to hold oil prices in check.

The "basic laws of supply and demand" are "no longer operative in crude oil markets," the report said.

The run-up in prices will cause a dramatic change in American driving behavior, the report said. Rubin and co-author Benjamin Tal predicted that by 2012, there would be roughly 10 million fewer cars on U.S. roads than there are today.

Roughly half of those giving up their cars will be low-income Americans — specifically, those earning less than $25,000 a year, according to the report — who won't be able to afford to continue paying for gas but do have access to public transportation.

"This is going to cost money," Rubin said. "The idea of commuting 30, 40 miles a day to work is going to be untenable for most people when gasoline costs $7 a gallon."

The Associated Press and ABC News' Scott Mayerowitz contributed to this report.