Gas prices follow oil to new highs
Crude oil jumped to a new high above $108 a barrel Monday, dragging retail gasoline and diesel prices along for record rides of their own despite ample fuel supplies.
Anyone hoping that the surge might have reached its peak is in for a rude awakening.
Analysts say that $110 a barrel or higher is possible given that the usual rules of supply and demand aren’t driving the oil-price party train. And the Goldman Sachs Group Inc. analyst who predicted the seemingly impossible $105-a-barrel “super spike” way back in 2005 has offered an update: oil as high as $200 a barrel.
Given that the original prediction came true last week during an extremely weak period for the U.S. economy and without geopolitical turmoil on a mass scale, “a future rebound in U.S. gross domestic product growth or a major oil supply disruption could lead to $150-$200 a barrel oil prices,” wrote Goldman analyst Arjun Murti, along with coauthors Kelvin Koh and Michele della Vigna.
Others offered less daring predictions and even the Goldman team acknowledged that oil futures could go sharply lower if rising prices lead to a global reduction in demand. Still, there are fundamental differences from past run-ups in the oil markets, analysts said.
“This is not a normal year,” said Tom Kloza, chief oil analyst for Oil Price Information Service, an energy price tracker based in New Jersey.
Instead of runaway demand or a hurricane, war or other supply disruption, oil is responding to the weakening U.S. dollar, the currency in which oil is traded. Investors desperate for havens in a deep housing market slump are buying up all kinds of commodities, including oil. In addition, a weak dollar makes oil cheaper in foreign nations.
“The money managers are not thinking independently,” Kloza said. “They are playing this by investing heavily in oil futures, and this is all going to end very badly.”
Gasoline and diesel prices have followed oil higher. Analysts say the situation was much different in 2007, when a spate of gasoline refinery problems and tight supplies caused an unusual spike in retail gas prices weeks before the traditional Memorial Day weekend start of the summer driving season.
“Gas prices are usually driven by supply and demand,” said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago. “This time it’s all about the cost of oil even though gasoline supplies are pretty ample. It’s rewriting the rule book.”
Oil for April delivery hit a new intraday trading high of $108.21 a barrel in New York commodities trading before closing at a record $107.90, up from $105.15 on Friday and a climb of about $20 in less than two months.
The pain at retail gasoline pumps has been severe.
On Monday, the Energy Department’s weekly survey of filling stations found that the national average for a gallon of self-serve regular climbed 6.3 cents to $3.225. That topped the old mark of $3.218 set May 21, and it was 66.6 cents above the year-earlier price.
Californians had the worst of it with an average of $3.537 a gallon, up 7.8 cents. That’s well above the old record of $3.461 set May 7 and 46.9 cents higher than a year earlier.
Diesel fuel, which keeps the nation’s transportation and farming sectors humming, also reached all-time highs in California ($3.955 a gallon) and nationwide ($3.819 a gallon).
For motorists such as former Navy Seaman Duane Devorak, it was all happening at a rank far above his own. High gasoline prices didn’t stop the newly discharged 26-year-old sailor from the aircraft carrier Nimitz from leasing his dream car, a black 2008 Mustang GT convertible. But he has been driving it a lot less than he wanted.
“It’s really outrageous,” Devorak said as he filled up on $3.64-a-gallon gasoline at a Chevron in West Hollywood. “The powers that be know that we have to drive no matter what it costs.”
Teri Fry of Hawthorne has already made major changes in her lifestyle and is planning to make more.
“I think this is ridiculous,” Fry said as she bought $25 worth of gas, not quite seven gallons, for her Saturn.
Fry, who has twin sports-loving 16-year-old daughters, carpools with the parents of other athletes on weekends. She and her husband have stopped driving their Chevy Suburban. Soon, she may start using the Metro Blue Line train to get to work.
“I’ll have to do that the way things are going,” she said.