Oil makes fresh run at $100

Crude sets new closing high, rising over $3 a barrel, on refinery outages, falling dollar and Fed hints at further rate cuts.

NEW YORK (AP) -- Oil prices rose sharply Tuesday, closing at a new record high and once again approaching $100 a barrel, as futures drew strength from a declining dollar, news of refinery problems and speculation that the Federal Reserve will again cut interest rates next month.

Light, sweet crude for January delivery surged $3.21 to settle at $98.03 a barrel on the New York Mercantile Exchange, surpassing the previous closing record of $96.70 set Nov. 6. Crude rose as high as $98.30 earlier, just 32 cents shy of oil's all time trading high of $98.62, set Nov. 7.

Gasoline prices, meanwhile, extended their decline at the pump.

Oil futures, which offer a hedge against a weak dollar, picked up momentum as the dollar fell to a new low against the euro, and added to their gains after the Fed forecast slowing growth and tame inflation next year.

Gas fell 0.5 cent overnight, retreating further from its most recent spike above $3. At a national average of $3.09 a gallon, according to AAA and the Oil Price Information Service, gas prices have fallen 2.2 cents in a little less than a week. Last week, many analysts predicted prices would instead rise another 10 to 15 cents a gallon to catch up with surging oil prices.

"More than likely, [prices will] probably hold steady through the end of the year," said Fred Rozell, retail pricing director at the Oil Price Information Service. "But that doesn't mean you're going to see relief in terms of lower prices."

Because gas prices are closely tied to the price of crude, pump prices could start rising again if crude does reach $100 a barrel, or higher. Oil peaked two weeks ago at $98.62 a barrel before pulling back to the low- to mid-$90s.
Gas prices hit working class

Many analysts cite speculative investing fueled by the weak dollar as a key reason for oil's fall rally.

"Expectations of interest rate cuts by the Federal Reserve are sending the dollar lower and this is once again drawing buyers ... into the crude oil market," said Addison Armstrong, an analyst at TFS Energy Futures LLC in Stamford, Conn., in a research note.

The Fed said it thinks business growth will slow next year, with gross domestic product growing between 1.8 percent and 2.5 percent. That's less than the Fed's previous projections. Meanwhile, overall inflation should fall next year to between a 1.8 percent and 2.1 percent increase, the Fed said.

"They just opened the door for the possibility of more rate cuts," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

However, the rising cost of energy could also persuade the Fed to either leave rates stable or raise them - the latter would likely lend support for the dollar and could pull oil prices back down.

Energy futures received an additional lift from word of problems at two oil facilities Tuesday. A Valero Energy Corp. (Charts, Fortune 500) refinery in Memphis, Tenn., that processes 180,000 barrels of crude a day has shut down for 10 days of unplanned maintenance and a Royal Dutch Shell (Charts) plant that converts bitumen from Alberta's oil sands region into 155,000 barrels a day of synthetic crude oil was temporarily shut down due to fire.

Oil product futures surged on the news. Gasoline futures for December delivery rose 7.12 cents to $2.4528 a gallon, while December heating oil futures climbed 8.53 cents to $2.6895 a gallon.

"When you get this kind of problem in this kind of environment, prices will rise," Flynn said.

Economic reports gave investors more reasons to buy, analysts said. China's economy will likely grow at a rate of 11.5 percent in 2007, state media quoted Chinese Premier Wen Jiabao as saying on Tuesday. And in the U.S., the Commerce Department said housing construction rose by 3 percent in October, the first increase after three months of declines and the biggest since last February.
Ditching the dollar

Growing demand from China is another reason oil prices have risen in recent years. And signs of significant economic growth in the U.S. support prices because energy investors believe a strong economy will demand more oil and gasoline.

Natural gas futures fell 31.6 cents to $7.471 per 1,000 cubic feet on the Nymex. Natural gas inventories are at record levels, and several recent forecasts have predicted a warmer than normal winter.

In London, January Brent crude futures rose $3.31 to $95.59 a barrel on the ICE Futures exchange.

Traders were also anticipating Wednesday's petroleum inventory report from the Energy Department's Energy Information Administration. Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week, while refinery use grew by 0.4 percentage point to 88.1 percent of capacity.

Gasoline inventories likely grew by 700,000 barrels, the analysts predicted, while inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels.

While oil supplies likely rose last week, prices were being supported Tuesday by concerns there would be a bullish surprise in the EIA report, such as an unexpected decline in inventories.
(Source money.cnn.com)