Oil prices fell Friday as investors sold to lock in profits, but analysts doubt oil's record-breaking run is over and say gasoline prices are about to start following oil higher.
Gasoline prices have so far held steady or even fallen despite a rally that boosted oil to new records for eight straight trading sessions on the New York Mercantile Exchange.
"That's over now," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service. "From now on, every $1 a barrel advance in crude has to be accompanied by a 2 1/2 cent increase in gas prices."
Oil's advance has been driven by a combination of the Federal Reserve's half-point interest rate cut, the falling dollar and concerns that tropical storms will strike key oil and gas installations in the Gulf of Mexico.
Interest rates and their role in pulling the dollar lower are drawing fresh investment dollars into energy markets, analysts say. Because oil and other commodities are priced in dollars, they still appear cheaper to overseas investors, whose currencies have strengthened against the dollar.
Light, sweet crude for November delivery fell 16 cents to settle at $81.62 a barrel on the New York Mercantile Exchange after rising as high as $82.40 earlier. November crude became the benchmark front-month contract after the October contract expired Thursday at a record close of $83.32. Prices reached $83.90 in intraday trading, also a record.
Despite Friday's swoon, many analysts expect oil to continue rising in the near term.
"What interest rates were placed at ... is the key to oil prices going higher," said James Cordier, president of Liberty Trading Group in Tampa, Fla.
But as oil has risen, the spread between what many retailers pay for their gasoline and what they charge consumers has shrunk substantially or even reversed in some cases.
"The people who actually sell the gasoline are really, really suffering," Kloza said.
Retail gas prices in many areas are already a nickel behind where they would need to be to allow retailers to turn a profit, Kloza estimated. Gas prices will likely rise an average of 10 to 15 cents a gallon nationwide over the next couple of weeks, Cordier said.
Overnight, the average price of a gallon of gas rose 0.6 cent to $2.797, according to AAA and OPIS. On the Nymex Friday, October gasoline futures fell 2.06 cents to settle at $2.1145 a gallon.
Retail gas prices, which typically lag the futures market, peaked at $3.227 in late May. At the time, futures were rallying as refiners were reporting an unusual number of unexpected outages. Investors were concerned the industry would not be able to make enough gas to meet peak summer driving demand.
As the summer progressed, however, refiners ramped up their gasoline production, and the supply worries ebbed.
But with peak summer driving season receding in the rearview window, many analysts had concluded that falling demand would compensate for supplies, which are again falling.
They didn't count on oil's fall surge. Gas prices have little choice but to follow, Kloza said. Still, he doubts prices will again reach the $3 level this year. Oil prices typically peak for the year in early October, Kloza said. When that happens, oil prices will decline into the winter months, pulling gasoline back down.
But in the meantime, he said, oil could rise as high as $91 a barrel.
"Crude will almost certainly go higher in the next 30 days," Kloza said on his blog, Speaking of Oil.
The profit-taking that drove oil lower on Friday was not unexpected, given the recent record gains, said Liberty Trading's Cordier.
In other Nymex trading, heating oil futures fell 0.47 cent to settle at $2.2562 a gallon while October natural gas gained 7.2 cents to settle at $6.08 per 1,000 cubic feet.
Energy investors were not impressed with a weather system in the Gulf of Mexico that could develop into a tropical depression or storm. Oil and gas companies have evacuated hundreds of workers from offshore rigs as a precaution, and "shut-in," or suspended about a quarter of the Gulf of Mexico's daily oil production.
But most analysts and investors expect the storm's impact on production to be short, even if it strengthens.