AP
Oil settles above $129 for first time
Tuesday May 20, 5:12 pm ET
By Adam Schreck, AP Business Writer
Crude oil futures pass $129 a barrel for the first time, prices at the pump hit $3.80


NEW YORK (AP) -- Just in time for the start of the summer driving season: Oil near $130 a barrel and gas getting closer to an average of $4 a gallon.

Crude prices spiked to yet another trading high Tuesday as supply concerns mounted. At filling stations across the country, the national average price for a gallon of regular gasoline touched $3.80 for the first time, having followed oil's spectacular rise.

The June contract for light, sweet crude traded as high as $129.60 on the New York Mercantile Exchange before settling at $129.07, up $2.02 from Monday's record high. The expiration of that contract, which ended with the close of Tuesday's trading, created additional volatility as traders scrambled to lock in positions.

It was the 10th time in the last 12 sessions crude prices have hit trading or closing records, if not both.

The July contract, meanwhile, hit its own new high, trading up to $129.29. It will become what traders call the front-month contract on Wednesday.

"I keep making projections, and they keep turning out to be too low," said Darin Newsom, senior analyst at market analysis provider DTN. "We're already pushing up against $130. If we clear that, there's no reason to believe crude oil can't get to $140."

Oil's march to new highs coincided with the Labor Department's report of an bigger-than-expected rise last month in wholesale inflation excluding energy and food. The combination raised fears that rising costs will slice into Americans' discretionary spending, and that sent stocks falling sharply on Wall Street, with the Dow Jones industrials losing nearly 200 points and closing at 12,828.68.

Drivers looking forward to road trips this holiday weekend will find no relief at the gas pump. The national average price for a gallon of regular gasoline is now $3.80 on the nose, according to AAA and the Oil Price Information Service, meaning gas prices are up about 19 percent from this time last year. Diesel jumped nearly 2 cents overnight to a record $4.54 a gallon.

Many analysts expect prices for both fuels will continue to rise.

"Eventually the higher prices do change consumer behavior and investment patterns," Energy Information Administrator Guy Caruso said. "But there's no short-term magic wand. It's going to take time."

Oil futures are now selling for about twice what they were just a year ago. Prices have been propelled by a number of factors, including worries about insufficient supply, soaring global demand and a sliding dollar that has made oil cheaper for some buyers overseas. Speculative buying has also helped push prices higher, analysts say.

"It's a runaway market at this point," said Fred Rozell, retail pricing director at the Oil Price Information Service. "I think it's just money chasing money."

Industry observers in recent days have also pointed to especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power. The country is also ramping up diesel imports ahead of the Olympic games, analysts say, driving up prices.

DTN's Newsom said that trend is likely to continue at least through the beginning of the games, which run from Aug. 8 to 24.

"China going into the Summer Olympics is putting its best face forward. They're going to continue to bring in diesel for their power plants and are going to have plenty on hand," Newsom said. "What's going to happen after that, we don't know."

Crude's latest surge came one day after Algerian Energy Minister Chakib Khelil, OPEC's current president, was quoted by a government newspaper as saying the cartel won't boost output before its next meeting in September, adding to concerns about global supply.

Oil's rally has helped drag the price of refined fuels higher as well. Futures for heating oil, which is used as a proxy for the price of diesel, and gasoline both set new records Tuesday.

"Diesel and gas are just taking a ride. This is really a crude market this year, and crude is really the driving force that's pushing prices higher," Rozell said.

Heating oil futures jumped almost a dime to settle at $3.775 a gallon, after earlier rising to a record $3.792, while gasoline futures added 6.78 cents to settle at $3.3044 a gallon, just short of the intraday high of $3.3085. In other Nymex trading, natural gas futures surged 41.1 cents to settle at $11.365 per 1,000 cubic feet.

In London, Brent crude for July delivery jumped $2.78 to settle at $127.84 on the ICE Futures Exchange.