Oil gushes past $100
The petroleum world produced a record Tuesday, which was bad news for consumers.
Frenzied trading sent crude oil surging above $100 a barrel -- to $100.01 -- the highest closing price ever for oil on the New York commodities market, making it likely that gas prices soon will jump too.
In addition, prices for gold, copper and other commodities soared as investment funds sought places to park their money in the face of inflation concerns and a weaker dollar.
Also on Tuesday, the Energy Department confirmed what anyone who filled up recently already knows -- that pump prices are rising across the country, bringing the U.S. average back above the $3-a-gallon mark.
The nationwide average cost of self-serve regular jumped 8.2 cents over the last week to $3.042 a gallon Monday, released a day late because of the Presidents Day holiday. Prices rose similarly in California, where gas averaged $3.191 a gallon, up 8.3 cents and 48 cents above year-earlier levels.
Consumer advocate Judy Dugan expects more financial strain ahead for motorists.
“With oil at those numbers, gas is going to go up again -- and for no good reason,” said Dugan of the Foundation for Taxpayer & Consumer Rights, based in Santa Monica. “Consumers ought to be infuriated.”
Gasoline and natural gas futures followed oil higher Tuesday, spurred by cold weather and threats to oil and fuel production from possible OPEC cutbacks, unrest in Nigeria, more verbal fisticuffs between Venezuela and Exxon Mobil Corp. and a recent explosion at a small U.S refinery, some analysts said.
Dugan dismissed assertions that the soaring price of oil Tuesday reflected supply worries or the flagging dollar. She blames speculators for the dramatic rush to the $100 mark, and so do many others.
“I don’t think you could make a sound economic rationale for oil at $100 . . . but here we are,” said Stephen Schork, who publishes a newsletter on oil markets. “It’s a tremendous speculative bubble. Crude oil, and commodities in general, have decoupled from reality and from the fundamentals.”
Given that traders sent oil higher amid plentiful crude and gasoline supplies as well as sagging worldwide demand for oil, falling U.S. gasoline consumption and a “very, very gruesome outlook for the U.S. economy,” Schork said, “I think we can get to $103, and there’s no reason that we can’t go higher.”
On Tuesday, the U.S. benchmark light, sweet crude for March delivery gained $4.51 on the New York Mercantile Exchange. Oil also set an intraday trading record of $101.10 a barrel.
Adjusted for inflation, the price of oil in April 1980 was between $99.04 and $101.70, depending on whose calculations . one uses.
Schork predicted that the nationwide average price of gasoline could peak at $3.50 -- and “in an extreme case” as high as $3.70 a gallon. That top price could put California’s average close to $4 a gallon.
Tom Kloza of the Oil Price Information Service also was pessimistic.
In the last eight years, wholesale gas prices rose an average of 78% from the wintertime low to the subsequent springtime peak. If the market stuck to that pattern, U.S. pump prices would hit between $4.17 and $4.75 a gallon, Kloza said.
But with demand and the economy lagging, he believes the spring rally this year probably will be substantially smaller. The risk to consumers, and the economy as a whole, goes beyond rising oil costs. Prices of many other raw materials have been surging this year as well.
Copper, for example, has jumped to $3.73 a pound in futures trading from $3.04 at the start of the year. Sugar reached 14.1 cents a pound Tuesday, up from 10.8 cents at year-end. Platinum is at a record $2,153 an ounce, up from $1,525 at year-end.
In many commodity markets, demand remains robust despite slowing economic growth in the U.S. and Europe. China’s imports of copper, for example, reached an eight-month high in January, according to Bloomberg News.
Supply issues are dogging other commodities: Electricity shortages in South Africa have curtailed the production of platinum.
What’s more, prices of many raw materials are being buttressed by investment demand, as pension funds and other institutions funnel cash into commodity-focused funds as an alternative to stocks and bonds.
In such times, the oil market is prime territory, and that helped create Tuesday’s surge, said Fadel Gheit, an analyst at Oppenheimer and Co.
“People are betting that the only place to hide right now is in commodities,” he said, “and the largest commodity market in the world is oil.”
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elizabeth.douglass@latimes.com
tom.petruno@latimes.com
