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Oil hits high for the year

CHRIS KAHN

Thursday, March 26, 2009

NEW YORK — The price of oil hit a new high for the year Thursday and U.S. retail gasoline rose above $2 (U.S.) per gallon for the first time since November as investors wagered that there would be a new run on crude stocks.

Canadian gas prices also edged higher Thursday, to an average of just under 90 cents (Canadian) per litre.

Benchmark crude for May delivery rose $1.58 (U.S.) to settle at $54.34 a barrel on the New York Mercantile Exchange.

In London, Brent prices rose $1.71 to settle at $53.46 a barrel on the ICE Futures exchange.

Gasoline prices in the United States rose 2.3 cents a gallon overnight to a new national average of $2.009 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are 10.9 cents higher than a month ago, but $1.252 lower than the same period last year. Gas prices last hit $2 on Nov. 20.

In Canada, the average price of gas across the country was 89.8 cents (Canadian) per litre Thursday afternoon, according to price-tracking site Gasbuddy.com.

Analysts have struggled to explain the recent surge in energy prices, especially as reports continue to pour out from the federal government showing that the U.S. economy is shrinking and its oil inventories are bloated with surplus crude.

Investors seem to have shrugged off the government data and have been bidding up prices on the expectation of a future shortage of crude oil, analysts said.

Stephen Schork, an analyst and trader, said a lot of investors are getting swept into a new run on oil stocks even though there is little to support rising prices.

“With global demand in the doldrums and the world swimming in oil, the current price run in oil is an aberration,” Mr. Schork said in his daily oil report. “We do not think it will last ... in a logical world.”

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said the traders are jumping to oil now, but it won't be like last year.

“This is not the beginning of the next great oil price shock,” Mr. Kloza said.

The price of gasoline, however, is travelling along more traditional lines.

Gas prices usually increase in the spring as refiners slow down production to get ready for a summer gas blends, and gas is actually cheaper now than it was at the same point in the previous four years. Mr. Kloza said the recession will keep prices low as manufacturers retrench and millions of laid off people no longer commute to work.

“We're on the trajectory where prices will top out between $2 and $2.25 a gallon in most markets,” he said.

On Thursday, the U.S. government said the economy shrank at a 6.3 per cent pace at the end of 2008, the worst showing in a quarter-century. And first-time claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week's revised figure of 644,000.

The total number of people claiming benefits jumped to 5.56 million, higher than economists' projections of 5.48 million, and a ninth straight record-high.

Meanwhile, the U.S. Energy Information Administration said that U.S. stores of natural gas rose last week despite expectations for a drop, and stockpiles remained well above historical levels.

Heavy industry, which has slashed spending and cut its work force, is a major consumer of natural gas.

Natural gas inventories held in underground storage in the lower 48 states rose by three billion cubic feet to about 1.65 trillion cubic feet for the week ended March 20, the report said. Analysts had expected a draw of between five billion to 10 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

OPEC countries have been trying for several months to squeeze off crude production in hopes of driving up oil prices. Members want to cut production by 4.2 million barrels per day.

Tanker tracker Oil Movements reported Thursday that OPEC is getting closer to its goal. Shipments from the Organization of the Petroleum Exporting Countries are expected to drop another 430,000 barrels per day for the four-week period ended April 4, Oil Movements reported.

U.S. inventories continue to expand, but many analysts are forecasting tight supplies in the future as economies stabilize, and the world works off its surplus of crude.

A plunge in oil exploration will make it even tougher to quench the world's appetite for petroleum in the future, experts said.

“But that's still several years away,” said Andrew Lipow, president of Lipow Oil Associates. By cutting so much production, OPEC and other oil producers have the ability to meet even a huge jump in demand, he said.

Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore, predicted that oil will be capped around $55 a barrel, and could fall as low as $43 a barrel, over the next two weeks if other countries release more gloomy economic data as expected.

Japan, which said exports plunged by nearly half in February, will release a quarterly business sentiment survey called the “tankan” next Wednesday that experts say is likely to be quite gloomy.

“Japan is the world's third-largest oil consumer, and the tankan is expected to drop to a 30-year low,” Mr. Moltke-Leth said. “I see more demand destruction down the way.”

In other Nymex trading, gasoline for April delivery gained 3.61 cents to settle at $1.5311 a gallon, while heating oil rose 1.66 cents to settle at $1.4813 a gallon. Natural gas for April delivery tumbled 38 cents on the U.S. inventory report to settle at $3.947 per 1,000 cubic feet.

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