The Car and Truck Fleet and Leasing Management Magazine

Oil Passes $120/Barrel on Monday

May 05, 2008

NEW YORK, N.Y. --- Fleet managers, brace yourselves for more pain at the pump. Though retail gas prices fell more than a cent over the weekend, oil futures on Monday rose to a record of over $120 a barrel.  

The average national price of a gallon of regular gas dipped to $3.611 a gallon on Monday, down 1.1 cents from Friday, according to AAA and the Oil Price Information Service. Prices reached a record $3.623 a gallon on Thursday. Diesel prices also declined to a national average of $4.239 from a record $4.251 on Thursday, the Associated Press reported.

But overseas supply threats, combined with a weaker dollar, sent light, sweet crude for June delivery to a new trading record of $120.21 a barrel on the New York Mercantile Exchange before futures declined a bit to trade up $3.46 at $119.78, the AP reported. That signals a probable return to rising retail gasoline prices.

The dollar weakened against the euro on Monday, attracting investors to commodities such as oil which they view as a hedge against inflation. Moreover, a declining dollar makes oil less expensive to investors overseas. A series of Fed rate cuts has weakened the dollar considerably against foreign currencies.

Meanwhile, supply outages or threats emerged in Iraq, Nigeria and Iran on Monday, causing prices to further spike.

On Monday, AP reported, "the [oil] market is bolstered by news out of Iraq, where Turkish forces have once again been involved in cross-border raids against ... insurgents, and Nigeria, where rebels attacked three oil wells and pipelines feeding [an] export terminal over the weekend," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

Kurdish rebels issued a warning that they could launch suicide attacks against American interests in retailiation for the U.S. sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. Oil traders are concerned that any conflict in the Middle East will cut oil shipments out of Iraq. In the recent past, incursions by Turkish forces into Iraq have caused oil prices to rise, the AP reported.

In Nigeria, a Royal Dutch Shell PLC spokesman said attackers hit an oil facility operated by Shell's joint venture in southern Nigeria, causing some oil production to shut down.

Also contributing to the surge in oil prices was a statement made by Iran's Supreme Leader Ayatollah Ali Khamenei on Sunday. He asserted that Iran will not succumb to international pressure and abandon its nuclear program. Iran is the second largest producer in the Organization of Petroleum Exporting Countries.

All these supply threats come at a time when global demand for oil continues to balloon, as the Chinese and Indian economies see double-digit growth.



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