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Oil Prices Finish at Record Above $126 a Barrel

AP
Friday, 16 May 2008 | 7:03 PM ET

Oil prices shot to new highs again Friday as traders, unimpressed by U.S. and Saudi efforts to boost supply, kept buying on the belief that prices had more room to rise.

Oil Refinery
Oil Refinery

Light, sweet crude for June delivery jumped $2.17 to settle at record close of $126.29 on the New York Mercantile Exchange. Earlier in the session, prices surged to $127.82 a barrel, also a new high. It was the eighth time in the past 10 sessions traders rewrote the record books, and the first time prices topped $127 a barrel.

Investors shrugged off news from Saudi Arabia's oil minister, Ali Naimi, that the country increased its production by 300,000 barrels a day last week in response to requests from customers. The market also had little reaction to the Energy Department's announcement said it would cancel shipments into the Strategic Petroleum Reserve for six months beginning July 1.

Oil industry observers questioned whether either move would have a significant effect on soaring energy prices.

"It's ridiculous because I don't think this is going to bring the price down," said Phil Flynn, an analyst at Alaron Trading, of the Energy Department's move.

The effect of Saudi Arabia's move was also not immediately clear. The increase, which went into effect last Saturday, is relatively small, lifting total output from the world's leading producer to 9.45 million barrels per day by June.

The addition of "300,000 barrels won't make a lot of difference," said Mir Yousufuddin, who monitors crude prices for the U.S. Energy Information Administration.

The announcement came during a visit by President Bush, who was in the kingdom to appeal for a more significant increase in production.

Saudi Arabia often adjusts its output to meet demand, and the increase coincides with the start of the peak driving season in the U.S.

"It's a way to raise production without raising production," Flynn said. "I think it was a way to save face."

Saudi Arabia has in the past acknowledged the ability to produce as much as 11 million barrels a day.

Energy traders were more focused on an upward revision of an oil price forecast by Goldman Sachs from $107 to $141 a barrel for the second half of the year. The investment bank is predicting continued swings in oil prices as prices dip at times because of falling demand before again moving higher.

"Accordingly, we would view any pullback in oil, regardless of the size or duration — although a correction could be as large as 15 percent — as an opportunity to re-establish long positions in oil before the summer," Goldman Sachs advised traders.

Crude's latest surge comes a week before the Memorial Day holiday, the traditional start of the summer driving season, suggesting that retail gas prices still have further to rise. Motorists are now paying a national average of $3.787 a gallon for regular gasoline, up nearly a penny from the previous day, according to AAA and the Oil Price Information Service.

Diesel prices also have risen to record levels, meaning that even Americans who don't drive will likely face even higher prices on all sorts of goods because of increased shipping costs. A gallon of diesel now sells for $4.482 a gallon.

Oil prices could rise even higher as U.S. demand picks up during the summer months, when gasoline consumption is typically the heaviest. Traders are clearly betting gasoline prices have a way to go too: Gasoline futures jumped to a record $3.2438 a gallon on the Nymex before easing slightly to settle at $3.2235, up 5.777 cents.

In other Nymex trading, heating oil futures rose 8.04 cents to settle at $3.7028 a gallon. Natural gas futures fell 28.4 cents to $11.115 per 1,000 cubic feet.

In London, June Brent crude surged $2.57 to $125.20 a barrel on the ICE Futures exchange.

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