Oil prices drop after setting an overnight record high

Oil prices dropped for the first time in several trading sessions only after making yet another new high overnight of $135.09.  Crude prices dropped $2.36 to settle at $130.81 a barrel on the New York Mercantile Exchange.

 

Gasoline prices rose 2.4 cents overnight to another new record at the pump, $3.831 a gallon.  Gasoline futures declined today, down 6.68 cents to settle at $3.3297 after rising to a new record $3.438.

 

Diesel fuel rose.  Heating oil futures rose 4.59 cents to settle at a record close of $3.9543 after rising earlier to a trading record of $4.0153.

 

Natural gas rose 5.7 cents to settle at $11.697 per 1,000 cubic feet.  The Energy Department said natural gas inventories rose last week by 85 billion cubic feet, in line with estimates.

 

Some analysts predict gasoline prices will break past $4 as early as next week.  Prices may rise as high as $3.90 a gallon on a nationwide basis by this weekend.  Gasoline prices in California and Illinois are now at an average of $4.005 a gallon.  New York is $4.019 and Alaska is $4.133 a gallon.  Diesel fuel prices in California are now averaging $4.894 a gallon. 

 

It appears a stronger dollar gave some investors reason to sell oil futures to lock in profits from crude's record run.  It is believed falling supply and rising demand are expected to continue and this will keep upward pressure on prices in the days and weeks to come.

 

The Paris-based International Energy Agency said it is worried about whether there is enough oil to meet global demand, and it is working on a review of the world's 400 largest oil field that could lead to a major revision in its closely-watched forecasts.

 

During a visit to Ecuador OPEC chief Abdala El-Badri said today that members are unhappy with surging oil prices that he blamed on speculators and a weak US dollar.

 

"Volatility has nothing to do with the fundamentals.  It has nothing to do with world demand," he said, stressing that a dropping dollar was driving prices higher.

 

The OPEC chief said that in the past, when there has been a problem with supply, the group has, "never hesitated to held a meeting and try to correct that.'

 

"But today we are convinced that this price has nothing to do with the market, there is a lot of oil in the market, there in no shortage whatsoever, the stocks are very high, at comfortable levels and the main problems are speculators."

 

Qantas Airlines(Australia) said it will raise domestic and international air fares for the second time in less than a month in an attempt to offset soaring world oil and jet fuel prices.

 

International air fares will rise by about 4% and domestic fares by about 3% for tickets issued in Australia from June 4.

 

Relative strength, as could be expected, dropped back today, all the way down to 71%.  This still puts it on the high side and still suggests that prices should drop more.

 

The 20-day moving average climbed to $122.37 and the 50-day moving average climbed to $113.42.  Volume climbed by almost 60,000 contracts to 408,179 contracts.  Open interest dropped by almost 13,000 contracts, now sitting with 376,547 open contracts for the July expiration.  Total volume covering all months for over 100,000 contracts to 801,050 contracts being traded.  Open interest for all months climbed slightly to 5,569,983 open contracts.

 

Trading should be light with the holiday weekend looming many investors may have already taken off for the weekend.  With the lighter than normal trading the speculators ought to be out in storm.  It wouldn't be surprising to see oil prices try to reach back up to $135 level once again.

 

(See bottom of webpage for current graph of oil prices)