AP
Oil jumps over $123 on drop in diesel, heating oil supplies
Wednesday May 7, 6:11 pm ET
By John Wilen, AP Business Writer
Oil prices jump over $123 after Energy Department reports drop in diesel, heating oil supplies


NEW YORK (AP) -- Oil futures extended their seemingly relentless advance Wednesday, rising to a new record near $124 a barrel as investors captivated by the market's upward momentum looked past the government's report of an increase in crude and gasoline supplies. At the pump, gas prices rose for the first time since last week.

Light, sweet crude for June delivery hit a new trading record of $123.93 in after-hours activity on the New York Mercantile Exchange after settling up $1.69 at a record close of $123.53 a barrel.

Analysts attributed oil's rise to continued buying from the surge that pushed prices past $120 for the first time earlier this week. The fact that prices didn't decline sharply after the inventory report was released signaled to some investors that the market was ripe for another rally.

"It shows you that this market ... at times just ignores bearish news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "It's just momentum."

Earlier, oil prices waffled as traders were torn between relief that crude and gasoline supplies are rising and worries about rising demand and falling distillate stockpiles.

The Energy Department's Energy Information Administration said in a weekly report that inventories of distillate fuels, which include diesel and heating oil, fell unexpectedly while gasoline demand rose slightly last week. Traders chose to focus on those numbers and shrug off crude inventories, which rose much more than analysts predicted, and gasoline supplies, which increased when analysts forecast a decline.

But the distillate numbers appeared to be merely an excuse for the market to keep surging upward.

Some evidence that investors were buying simply to keep up with the market's momentum came from the fact that a stronger dollar had little or no impact on trading. The dollar's protracted decline against the euro and other foreign currencies has played a major role in oil's rise by attracting investors looking for a hedge against inflation. When the dollar reverses course and strengthens, the effect usually reverses, sending oil prices lower -- but not on Wednesday.

June heating oil futures rose 9.38 cents to settle at $3.4473 a gallon after earlier rising to a new trading record of $3.4535.

At the pump, meanwhile, the average national price of a gallon of regular gas rose Wednesday for the first time since last week, adding 0.8 cent to $3.618, according to a survey of stations by AAA and the Oil Price Information Service. Gas prices are back within a cent of the record $3.623 a gallon set last week, and are expected to rise to an average of $3.73 a gallon next month, according to the latest Energy Department forecast.

Some analysts predict prices could rise to a national average of $4 in coming weeks; prices are already that high in some areas, including parts of Hawaii and California.

Diesel fuel also rose Wednesday, adding half a cent to a national average of $4.242 a gallon, within a penny of the record of $4.251 set May 1. While high gas prices are hitting consumers at the pump, high diesel prices are hurting them in grocery and retail stores.

"We must pass some of these costs through to our customers, which ultimately translate(s) into higher prices on the store shelves," said Mike Card, president of trucking firm Combined Transport Inc., of Central Point, Ore., in Senate testimony on Wednesday.

Gas prices tend to lag the futures market, and fell slightly in recent days due to a nearly $10 decline in oil prices last week. But crude futures have rebounded sharply since then, and gas prices are responding by also rising. Analysts and the EIA expect gas prices to decline over the summer after peaking in late May or June; that's the pattern gas prices follow most years. Of course, this is anything but a normal year -- crude oil prices have nearly doubled in the past 12 months.

"All bets are off if oil keeps going up," Flynn said. "Gas prices could keep rising."

In other Nymex trading Wednesday, June gasoline futures rose 1.27 cents to settle at $3.1182 a gallon after earlier rising to their own new trading record of $3.1323, while June natural gas futures rose 17.7 cents to settle at $11.327 per 1,000 cubic feet.

In London, June Brent crude futures rose $2.01 to settle at $122.32 a barrel on the ICE Futures exchange.