OIL futures surged to a new record over US$120 a barrel yesterday, raising concerns about higher prices for gasoline and goods and services throughout the US economy.
Supply threats that emerged overseas and a weaker dollar sent light, sweet crude for June delivery to a new trading record of US$120.36 a barrel on the New York Mercantile Exchange before futures retreated slightly to settle up US$3.65 at a record US$119.97.
Oil's sharp rise this year has driven gas prices to unprecedented levels, prompting consumers to reconsider summer vacation plans and limit daily excursions; they're also spending less at malls and shopping centers because they're paying more not just for fuel, but for all kinds of goods and services. Americans are also being pinched by tight credit conditions, a sluggish jobs market and a downturn in the housing market.
"American consumers are being hit hard financially from a bunch of different directions," said Troy Green, a spokesman for AAA.
The mix of factors that drove oil to its latest record were a microcosm of the forces that have nearly doubled oil prices from their levels of about US$62 a barrel one year ago. The dollar weakened against the euro on Monday, attracting investors to commodities such as oil which they see as a hedge against inflation. Also, a falling dollar makes oil less expensive to investors overseas. A series of Federal Reserve rate cuts starting last year weakened the dollar considerably against foreign currencies; analysts blame the dollar's protracted decline for oil's sharp rise this spring.
Supply outages or threats emerged in Iraq, Nigeria and from Iran on Monday; events in all three nations have caused prices to spike many times in recent months.
In Iraq, Kurdish rebels warned they could launch suicide attacks against American interests to punish the US for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. In Nigeria, a Royal Dutch Shell PLC spokesman said attackers hit an oil facility belonging to Shell's joint venture in southern Nigeria and that some oil production has been shut down. And Iran's Supreme Leader Ayatollah Ali Khamenei said his country will not bend to international pressure and give up its nuclear program.
Energy investors grow concerned any time conflict breaks out or is threatened in the oil-rich Middle East. Years of unrest in Nigeria have cut off nearly a quarter of the major US supplier's oil output.
Beyond the occasional threats to crude supplies, global demand for oil continues to grow. While demand for oil and gasoline has been soft in the US, the Chinese and Indian economies are growing by double digits, boosting global demand for oil.
In other Nymex trading Monday, June gasoline futures rose 8.65 US cents to settle at US$3.0529 a gallon, and June heating oil futures rose 8.78 US cents to settle at US$3.3065 a gallon. June natural gas futures rose 40.1 US cents to settle at US$11.178 per 1,000 cubic feet.
In London, June Brent crude futures gained US$3.43 to settle at US$117.99 a barrel on the ICE Futures exchange.