Oil waffles on mixed government inventory report
NEW YORK -- Oil futures rose to a new record Wednesday, then seesawed after the Energy Department offered a mixed picture of the nation's petroleum supplies. At the pump, gas prices rose for the first time since last week.
The department's Energy Information Administration said in a weekly report that gasoline demand rose slightly last week while supplies of distillate fuels fell unexpectedly. However, the EIA also said crude inventories rose much more than analysts predicted, and gasoline supplies increased when analysts forecast a decline.
The result was a market that waffled as traders were torn between relief that oil and gasoline supplies are rising and worries about rising demand and falling distillate stockpiles.
In the minutes after the report was released, light, sweet crude for June delivery fell by more than a dollar, then shot to a new trading record of $122.81 on the New York Mercantile Exchange. In later trading, futures fell 27 cents to $121.57 a barrel.
"It shows you that this market ... at times just ignores bearish news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. Flynn said gasoline demand should be rising much faster this time of year, and argued that the energy market should be more focused on rising crude and gasoline supplies.
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 a monthly average of $3.73 a gallon next month, according to the latest Energy Department forecast.
Some analysts predict prices will 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."
Oil prices have risen in recent months on a mixture of concerns about supply disruptions in Nigeria and the Middle East amid growing demand in fast-growing nations such as China and India. But the dollar's protracted decline against the euro and other foreign currencies has also played a major role in oil's rise by attracting investors looking for a hedge against inflation. The dollar gained ground Wednesday.
Oil's rise over the course of this decade has led to record spending on drilling and equipping wells in the U.S. A new American Petroleum Institute survey says industry spending on wells jumped 44 percent in 2006 to nearly $110 billion.
In other Nymex trading Wednesday, June gasoline futures fell 1.5 cents to $3.0905 a gallon, while June heating oil futures rose 2.78 to $3.3813 a gallon. June natural gas futures rose 15 cents to $11.30 per 1,000 cubic feet.
In London, June Brent crude futures rose 37 cents to $120.68 a barrel on the ICE Futures exchange.