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Some relief for oil prices, but gas prices soar higher

Saudi Arabia says it would ensure supply availability with OPEC

Some relief for oil prices, but gas prices soar higher

Oil prices dropped Monday on a stronger U.S. dollar and a call from Saudi Arabia for a meeting to talk about prices it called unjustifiably high.
The dollar improved against the euro after Treasury Secretary Henry Paulson said he would not rule out intervention to stabilize the U.S. currency. That provided some relief for oil, which is priced in dollars, after a record run-up on Friday.
Saudi Arabia called for a meeting of oil-producing countries. A Saudi minister said the kingdom would work with OPEC to "guarantee the availability of oil supplies now and in the future." He also said the current price of oil is unjustified.
July futures for light, sweet crude fell US$4.19 to settle at US$134.35 a barrel in volatile trading on the New York Mercantile Exchange. On Friday, oil jumped nearly US$11, a single-day record.
Last week, oil prices rose nearly 14 percent in two days, trading as high as US$139.12 a barrel, after slumping more than US$13 from a previous record high.
Interest rates increase
The sharp jump last week began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation. That sent the dollar falling against the euro.
A stronger dollar
In an interview on CNBC Monday, Paulson said he would not rule out the possibility of intervening to stabilize the dollar, though he declined to speculate about what the government might do. The dollar strengthened against the euro on Paulson's comments, sending oil lower.
Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. But on Monday, the effect reversed. The dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas.
One of the factors that underpinned Friday's rally was an Israeli cabinet minister's comment that his nation might attack Iran if it didn't halt its nuclear program.
But that prospect appeared to dissipate over the weekend as Israeli Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that the minister had not been expressing official government policy.
But other factors support high oil prices. An explosion last week at a natural gas production facility in Australia has boosted demand for diesel by that country's mining sector, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
Strike in Nigeria
In Nigeria, a major U.S. oil supplier, a strike later this week could take 450,000 barrels in daily oil supplies off the market, Armstrong said. Both events highlight how tight oil supplies are.
Some analysts see warning signs in Friday's bold oil price jump.
"It was a freakish oil market Friday as the market's worst fears _ some real and some imagined _ exploded into a rhapsody of wild buying," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago, in a research note.
The US$10.75 move had some of the hallmarks of a "blow-off top," Armstrong said, or a rapid, explosive run-up in prices that's followed by steep declines. Still, it's far to early to tell for sure, he added.
In other Nymex trading Monday, July gasoline futures fell 15.4 cents to settle at US$3.394 a gallon, and July heating oil futures fell 9.7 cents to settle at US$3.877 a gallon. July natural gas futures fell 8.9 cents to settle at US$12.604 per 1,000 cubic feet.
In London, July Brent crude fell US$3.78 to settle at US$133.91 a barrel on the ICE Futures exchange.


Updated : 2021-03-08 11:53 GMT+08:00