Oil Prices Hit $98 Per Barrel, the Looting of Consumers by Traders Continues

Oil prices' climb toward $100 slowed

By JOHN WILEN AP Business Writer

Nov 7, 2007, 1:14 PM EST

NEW YORK (AP) --

Oil prices stalled in their climb toward $100 a barrel Wednesday after a government report said oil inventories fell less than expected last week while refinery utilization remained flat.

Oil investors largely viewed the report as neutral in that it confirmed a view that oil supplies are falling, but offered no real surprises. A larger than expected drop would most certainly have propelled oil past $100 a barrel for the first time.

Crude inventories did fall at the closely-watched New York Mercantile Exchange delivery terminal in Cushing, Okla., but that did not appear to be enough to propel prices sharply higher.

"We got kind of a mixed reaction," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

At the pump, meanwhile, the national average price of a gallon of gas rose 1.9 cents overnight to $3.043, according to AAA and the Oil Price Information Service. Prices are up nearly 29 cents since mid-October and are 85 cents higher than a year ago.

Some analysts think oil prices have far outpaced levels that are justified by the underlying principles of supply and demand. These analysts blame market speculators for pushing crude prices to record levels, and predict that a correction, or sharp decline, is imminent.

"At some point, the market does actually discount the bullish possibilities," said Tim Evans, an analyst at Citigroup Inc., in New York. "That risk of exhaustion is very present here."

Light, sweet crude for December delivery rose 71 cents to $98.41 a barrel on the Nymex, about where futures were trading before the report's release. Before the report's release, prices rose as high as $98.62, a new record.

December gasoline futures rose 1.5 cents to $2.45 a gallon on the Nymex, and December heating oil futures rose 2.1 cent to $2.6288 a gallon. December natural gas futures fell 16.8 cents to $7.695 per 1,000 cubic feet on expectations that inventories rose last week and on forecasts for warmer weather in the Midwest and Northeast.

In London, December Brent crude rose 59 cents to $93.85 a barrel, supported by severe weather in the North Sea, which has shut down several oil platforms.

The EIA reported Wednesday that crude supplies fell by 800,000 barrels during the week ended Nov. 2, half the 1.6 million barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.

Supplies at the Nymex delivery terminal in Cushing, Okla., fell by 1.7 million barrels last week.

Refinery utilization remained flat at 86.2 percent of capacity. Analysts had expected an increase of 0.8 percentage point.

Gasoline inventories fell by 800,000 barrels last week, countering analyst expectations for an increase of 200,000 barrels. Inventories of distillates, which include heating oil and diesel fuel, rose by 100,000 barrels last week. Analysts expected a decline of 500,000 barrels.

Imports of crude oil rose by an average of 275,000 barrels a day last week to 9.7 million barrels a day. Gasoline imports rose by 107,000 barrels last week to an average of 1.1 million barrels a day.

Demand for gasoline rose slightly last week, by about 12,000 barrels, the EIA said. Over the last four weeks, demand is up about 0.8 percent over the same period last year.

However, both Flynn and Evans questioned the EIA demand figures, noting they are often revised downward after the fact. If oil and gas prices continue to rise, demand will come down, analysts say.

"I would be surprised if we didn't see some kind of demand slowdown after a price increase of this level," Flynn said. "I'm not sure that we've seen the impact of this price spike yet on demand."

Oil prices are up 42 percent since August.

Oil's seemingly relentless climb does raise the question of how high energy prices will go. If crude does keep going up, it might be some time until consumers see relief at the pump. Some analysts predict prices could rise as high as $3.50 to $4 a gallon next summer.

The Energy Information Administration predicts gas prices will remain above $2.90 a gallon for the rest of the year and will set a new record national average of $3.235 a gallon by May. In May 2007, prices peaked at $3.227 a gallon as refiners, faced with a series of unexpected outages, struggled to produce enough gas to meet demand.

Meanwhile, estimates of where oil is headed from here range from $50 a barrel to $120. Flynn, who long ago predicted prices would rise to near $100 this year, now says he is beginning to doubt whether prices will actually reach $100 a barrel during the current price spike.

"I think the market is due for a correction," Flynn said.

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