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Thursday, May 01, 2008
Oil Dips Below $111 a Barrel
Associated Press
SINGAPORE--Another jump in the dollar sent oil prices below $111 a barrel Thursday as speculators who drove crude futures to nearly $120 pulled out of the market. Retail gas prices, meanwhile, rose to a new record above $3.62 a gallon.
The dollar's rise against the euro and other currencies stripped away some of oil's appeal to investors who have been betting for months that the greenback would continue to falter. When the greenback gains ground, commodities such as oil lose their value as a hedge against inflation, prompting selling. Also, a stronger dollar makes oil more expensive to investors overseas.
As the dollar has strengthened this week, oil futures have dropped more than $9 from their highs to trade at their lowest level since April 14. On Thursday, light, sweet crude for June delivery fell $2.53 to $110.93 a barrel on the New York Mercantile Exchange, while the euro bought $1.5514, down from $1.5642.
But analysts caution that the declines in oil could be temporary. The dollar's protracted decline has been a major factor behind oil's rise from about $64 a year ago, and future dollar weakness could easily push crude futures above $120.
"It's all about the dollar," said James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com. "I don't think the dollar is going to stay strong."
The dollar's gains in recent days has come on a view that the Federal Reserve's interest rate cutting campaign is nearing its end; lower interest rates tend to weaken the dollar. The Fed cut rates a quarter percentage point on Wednesday, and did not give a clear indication of its future plans. But with the benchmark federal funds rate at 2%, investors sense that the Fed can't cut rates much further.
"It's not going to be zero (percent), it's not going to be a half (percent)," Cordier said.
However, other nations' central banks are considering raising interest rates, actions that could further weaken the dollar, Cordier said. If that happens, or if there is a major supply disruption, crude prices could easily rise to $130 in June, he said, and that could push gas prices to $4 a gallon.
At the pump, the average national price of a gallon of regular gas rose 0.6 cent to a record $3.623 Thursday, according to a survey of stations by AAA and the Oil Price Information Service. Diesel prices inched 0.1 cent higher to a record $4.251 a gallon. Gas prices are already higher than $4 in many parts of the country, including in California and Hawaii.
Despite crude's recent declines, gas prices are likely to keep rising for a while. Crude's rapid rise over the past year has squeezed refinery profit margins; refiners must pay for the oil they refine into fuel, but have been unable to raise gas prices fast enough to keep up with crude. While oil prices are up about 73% in the last year, gas prices are only up 22%.
On Thursday, Exxon Mobil Corp. (XOM) reported a first quarter profit of $10.9 billion, but missed analyst expectations. The company said significantly lower worldwide refining margins reduced earnings by about $1 billion in the quarter.
Analysts expect gas prices to peak within the next two months.
In other Nymex trading Thursday, June heating gasoline futures fell 7.49 cents to $2.8314 a gallon, and June heating oil futures fell 7.39 cents to $3.0841 a gallon. June natural gas futures fell 24.8 cents to $10.595 per 1,000 cubic feet. The Energy Department said natural gas inventories rose by 86 billion cubic feet last week, more than many analysts had expected.
In London, June Brent crude futures fell $2.04 to $109.32 a barrel on the ICE Futures exchange
FOX Translator
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Everyone would agree they see more "Made in Taiwan/China/Japan/etc..."tags than "Made in the USA" tags for the past several years. Well, that "Made in _____" tag on your clothing has an economic term sewn into it: trade deficit. A trade deficit happens when one country buys more goods than it sells to other countries.
For example, if the entire United States (all 300
million of us) made only 100 shirts this year, and if all of China made 100 shirts, some of those shirts would be traded between
us- we would sell a few to China, and vice versa. But a trade deficit happens when one country sells more shirts than another.
China, in this example, could sell 85 shirts to America. The U.S. could sell 55 shirts to China. So, in this trade, China
sold more shirts to the United States, 30 more in fact.
Most businessmen and economists believe that most trade deficits
aren't a bad thing; it's just part of trade, and at some point trade between two countries should balance out eventually.
The big exception is the U.S., which buys vastly more stuff than it sells, and has done so for decades.
Why does this matter? Well, in order to buy those shirts, you need money. And if you are buying more shirts than you're selling shirts, you're losing money. If you're a business, you won't be in business much longer.
But, countries aren't businesses. They are, well, countries, and can print all the money they want. People who deal with currencies, or each country's version of money, look at trade deficits as one way to find out how much each country's currency is worth. If you have to print more money, each dollar you print can possibly lower the value of the other dollars out there. Like stocks, you can buy and sell currencies on what's called the foreign-exchange market (or, if you want a buzzword for the office, say Forex market).
Well, because the U.S. has been buying a lot of stuff from China for many, many years, China holds a lot of U.S. dollars. If China were to sell those dollars on the market at some point, well, it wouldn't be very good. The U.S. dollar's value would fall -- making imports and traveling abroad much more expensive.
Trade deficits are usually a good thing, because it shows that the global economy is working. It's just when a trade imbalance gets too high where economists and investors start to become concerned.
