Gasoline prices were poised Monday to set a record at the pump, having surged to within half a cent of their record high of $3.227 a gallon. Oil prices, meanwhile, surged above $108 to an inflation-adjusted record and their fifth new high in the last six sessions on an upbeat report on wholesale inventories.
Wall Street sank on the news. Investors, also worried about troubling signs for the financial sector, sent the Dow Jones industrial average down more than 150 points, bringing its three-day loss to nearly 515, while broader indexes showed steeper percentage losses.
The national average price of a gallon of gas rose 0.7 cent overnight to $3.222 a gallon, 69 cents higher than one year ago, according to AAA and the Oil Price Information Service. Last May, prices peaked at $3.227 as surging demand and a string of refinery shutdowns raised concerns about supplies.
That record is likely to be left in the dust soon as gas prices accelerate toward levels that could approach $4 a gallon, though most analysts believe prices will peak below that psychologically significant mark.
In its last forecast, released last month, the Energy Department said prices are likely to peak around $3.40 a gallon this spring; a new forecast is due today.
Retail gas prices are following crude oil, which has jumped 25 percent in a month.
On Monday, crude prices surged to yet another record after the Commerce Department said wholesale sales jumped by 2.7 percent in January, their biggest increase in four years, according to Dow Jones Newswires.
The strong sales report suggested to oil traders that the struggling economy may be doing better than thought.
Light, sweet crude for April delivery rose $2.75 to settle at a record $107.90 on the New York Mercantile Exchange after earlier setting a trading record of $108.21.
Prices are heading to $120 "in the short term," Matthew Simmons, chairman of Simmons & Co., a Houston investment bank, was quoted as saying by Bloomberg News. "I'm one of the few people who's not surprised to see crude at $107. I still think it's a bargain."
Goldman Sachs Group Inc.'s forecast for 2009 U.S. crude-oil prices was raised to $105 from $90 a barrel, in a report dated March 6, Bloomberg also reported. The Goldman oil-equity analysts in London said that the increase was warranted because non-OPEC production is approaching a plateau while Asian economies spur consumption.
Many analysts believe speculative investing attracted by the weak dollar is the primary reason oil has risen so far so fast in recent months. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
"We've got a Fed meeting on the 18th that could see a sizable rate cut," said Brad Samples, an analyst with Summit Energy Services Inc., in Louisville, Ky. "So, it's not over."
Indeed, while the dollar rose against the euro on Monday, many investors believe the greenback is likely to keep falling as the Fed continues to cut rates. Many analysts believe the rise in crude prices is not supported by the market's underlying fundamentals, noting that supplies are generally rising while demand is falling.
"By gobbling up everything in sight, [investors] are pushing food and fuel prices to ruinously high levels," Peter Beutel, president of the energy risk management firm Cameron Hanover, said in a research note.
Other energy futures also rose Monday. April heating oil futures rose 2.64 cents to settle at $2.9734 a gallon while April gasoline futures rose 2.06 cents to settle at $2.7149 a gallon.
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