6/13/08

Oil settles below $135 after OPEC questions prices

Oil settles below $135 after OPEC questions prices

By ADAM SCHRECK, AP Business Writer 1 hour, 4 minutes ago

NEW YORK - Oil prices pulled back Friday after OPEC questioned whether crude can remain so high and the dollar gained against the euro. Meanwhile, U.S. filling station operators pushed average gas prices deeper into record territory.

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Light, sweet crude for July delivery fell $1.88 to settle at $134.86 on the New York Mercantile Exchange.

In its monthly market report, the Organization of Petroleum Exporting Countries said oil's recent volatility "reconfirms the view that current price levels do not reflect supply and demand realities."

The cartel also lowered its 2008 global demand forecast, saying it now expects demand to increase by 1.28 percent to an average of 86.9 million barrels per day, down from a previous forecast of 1.35 percent.

"A review of prospects for the remainder of the year also shows little support for prices to remain at current levels," OPEC said.

That downward revision follows similar moves by the U.S. Energy Department and the International Energy Agency earlier in the week.

Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, said the revised forecasts suggest global demand for oil is slowing. That trend could accelerate, he added, if prices don't come down soon.

"It's a sign that maybe the bull run could come to an end. You don't want to say that for sure, but you're starting to see some shifts," Flynn said.

Oil prices were also pressured by speculation that Saudi Arabia may boost production following a report in the Middle East Economic Survey, an industry publication.

Crude prices have fluctuated widely since they surged nearly $11 in a single session to a trading record above $139 a week ago. The price for a barrel has swung back and forth in a $10 band since then.

Some investors believe prices could yet push higher. Analysts call oil's current wavering "range-trading," as traders await direction from a significant move in the dollar or change in supply-and-demand fundamentals.

"There is no driver out there to cause prices to break out of this range yet," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

A stronger dollar also helped keep oil prices in check. The greenback gained against the euro after a Labor Department report showed consumer prices rose by the biggest increase since November, helping alleviate concerns that growing inflation could force shoppers to tighten their belts.

Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.

At the gas pump, the average national price for a gallon of regular rose to a record $4.066 overnight, from $4.06 a day earlier, according to AAA and the Oil Price Information Service. Diesel also set a new record, rising 0.2 cent to $4.796 a gallon.

The pain from the high cost of fuel is by no means limited to the U.S., where gas and diesel remains far lower than in Europe and some parts of Asia.

Many developing countries, which typically have far lower household incomes, hold food and fuel prices lower through subsidies. But higher commodities costs are forcing some governments to increase those subsidized prices as well.

In Malaysia, more than 1,000 opposition supporters marched through Kuala Lumpur on Friday to protest the government's decision last week to hike retail prices 41 percent to $3.30 a gallon. Demonstrations have also broken out in India.

U.N. Secretary-General Ban Ki-moon said soaring food and fuel costs could pose a threat to global stability.

"Unless we properly manage this issue, this could trigger a cascade of other challenges and crises affecting not just social and economic issues, but also political and security issues," Ban said following talks in London with British Prime Minister Gordon Brown.

In other Nymex trading, July heating oil futures slipped by 10.59 cents to settle at $3.8368 a gallon, and July natural gas futures fell 17.3 cents to settle at $12.625 per 1,000 cubic feet. Gasoline futures settled at $3.4626, down 6.34 cents over Thursday's close.

In London, July Brent crude lost $1.54 to sell for $134.55 on the ICE Futures exchange.






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