Oil prices have hit new records for the past five sessions, and were tempered somewhat for a period today after hitting an all-time high this morning, but settled at a new record nonetheless -- over $108 per barrel!
The Fed's move, along with other central banks, to inject liquidity into the financial markets helped boost the dollar from its all-time low against the euro, and as a result, oil prices retreated from a new record high near $110/barrel this morning.
But oil prices are still firmly above the triple-digit mark all the way out until December, leading many analysts -- including those at the Energy Department -- to raise their 2008 price forecasts. The EIA now sees spot oil topping $94 a barrel this year on average, up nearly $8 from their view just a month ago.
Shorts in this market are definitely getting squeezed as prices rise to unparalleled heights, traders say. Legendary oil trader Boone Pickens told CNBC viewers at the end of February that he was shorting oil. Today, a spokesman at his firm confirmed that the BP Capital Energy Fund was down 14 percent from the end of 2007 to the end of February.
The runup in oil prices -- posting a 17 percent gain since Feb. 11 -- has fueled a tremendous surge in refined product prices as well. Heating oil finally hit $3 today -- another all-time record high. Nymex heating oil futures have set all-time records for 14 of the past 16 days -- an unprecedented rally for nearly any market.
Wholesale gasoline prices closed at an exchange record again today, and drivers are finally starting to feel the pain. The national average for regular unleaded gasoline is now at a new record at $3.23/gallon, surpassing last May's high. The Energy Department says there is a "significant possibillity" we'll see retail gas prices top $4/gallon this year in some regions.
So how much higher can this market go, what will cause prices to come down? Since the runup hasn't been based on fundamentals, it may have nothing to do with supply and demand analysis.
It seems "Mom and Pop" buyers, not only sophisticated traders, are going to have to have a change of heart. So far this year the energy markets have just been deluged with new money. Energy analyst Peter Beutel says that's evidenced by the fact that year-to-date open interest in heating oil and gasoline futures, for example, is up over 14%.
"Most of it is money that has come from people who are refugees from stocks and bonds," Beutel says. "They're buying like sharks eat fish, gobbling everything up, just buy it, buy it, buy it."
So what could cause them to stop pouring money into oil? Beutel says it will take the Fed making a move to put speculators off-balance. Today's Fed action seemed to be a step in that direction, but it still wasn't enough to deter the bulls. Oil prices continue to rise.
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