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Oil prices hit new record

JOHN WILEN

Wednesday, April 09, 2008

NEW YORK — The price of oil has surged to a new record, with a barrel a crude trading above $112 (U.S.) a barrel on the New York Mercantile Exchange.

A government report that oil and fuel supplies were lower than expected last week gave crude a push past its latest milestone. But months of buying by speculators and by investors seeking refuge from a falling dollar have also lifted oil to its new heights.

Light, sweet crude for May delivery has traded as high as $112.16, surpassing the previous trading record of $111.80 set last month.

Gasoline and heating oil futures are also sharply higher.

Brent crude futures rose 11 cents to $106.45 a barrel on the ICE Futures Exchange in London.

Oil prices have been supported recently by a growing belief that U.S. gasoline supplies are falling as the summer driving season in the Northern Hemisphere approaches.

Last week, the U.S. Energy Department's Energy Information Administration said gasoline inventories fell more than expected during the week ended March 28. It was expected to report later Wednesday that gasoline stockpiles fell another 2.3 million barrels last week, according to a Dow Jones Newswires survey of analysts.

Analysts say refiners have cut back on gasoline production due to low profit margins. The rising price of crude means it costs refiners more to turn the raw product into motor fuel. The EIA was also expected to report that refinery use rose 0.7 percentage point to 83.1 per cent of capacity, the survey showed.

Still, worries about the U.S. economy — with the possibility of less demand for oil and oil products — kept a low ceiling on prices.

“Demand, as gauged by first quarter economic indicators, is less than rosy as consumer confidence erodes thanks to falling housing values and a retrenchment in the jobs market,” wrote Stephen Schork in his Schork Report of the medium-term outlook.

The U.S. Energy Department on Tuesday raised its forecast for the average price of crude in 2008, citing global demand and low surplus production capacity. The EIA, in its monthly report on petroleum supplies and demand, raised earlier price projections for crude oil, saying that the benchmark West Texas Intermediate contract would average $101 per barrel in 2008.

The agency had earlier predicted prices would average $94.

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