Crude rallies again

Published: Saturday October 17, 2009 MYT 9:19:00 AM

NEW YORK (AP): Oil prices finished above $78 per barrel for the first time in a year, marking the largest weekly percentage increase in the cost of crude since the height of the U.S. summer driving season.

Benchmark crude added 95 cents to settle at $78.53 a barrel on the New York Mercantile Exchange. In London, Brent crude for December delivery climbed 76 cents to settle at $76.99 on the ICE Futures exchange.

An Energy Department report sent a ripple through the markets midweek when it revealed a huge and unexpected drawdown in gasoline supplies. Energy prices surged Friday, even though the country continues to sit on an enormous supply of petroleum.

"I think this rally is based more on hope than reality," said Michael Lynch, president of Strategic Energy & Economic Research. "There's so much oil out there that people are going to start using it for their pancakes."

Gasoline futures rose as well as the run-up over the past seven days on Nymex began to spill over into the retail market and push pump prices higher.

Demand for gasoline edged higher, more than 5 percent in the last month, but there are enormous supplies, too. The amount of gasoline in storage is still well above average for this time of year.

All one needs to do is look at oil refiners to see where the industry stands. U.S. refiners are shutting down facilities and production has thinned to levels that are usually seen only after a hurricane tears up the Gulf Coast energy complex.

Americans, as a whole, are not traveling like they used to, either because of a lost job or concern over losing one. Demand for jet fuel is down 3.5 percent over the past four weeks, according to the Energy Information Administration.

The rise in energy prices is all about the dollar, which hit a 14-month low on Thursday. Crude is bought and sold in the dollar, so it gets cheap for investors when the U.S. currency falls.

Oil prices jumped more than 9 percent during the past week as the dollar floundered. The last time crude futures rose so fast was the week of Aug. 24, when tourists crammed the highways during what's typically the busiest travel period of the year.

In other Nymex trading, heating oil added 1.16 cents to settle at $2.0297 a gallon, while gasoline for November delivery added 3.44 cents to settle at $1.9793 a gallon. Natural gas for November delivery rose 29.9 cents to settle at $4.781 per 1,000 cubic feet.