NEW YORK (AP) — Crude prices bounced above $80 per barrel once again on Wednesday, a level that even OPEC leaders have said is too high given the fragile state of the global economy.
And again it is the U.S. currency that is getting most of the blame.
The dollar gave up more ground against the euro early Wednesday. It continued to tumble after the Federal Reserve decided to keep a key interest rate at a record low in hopes of bolstering a fledgeling economic recovery. Rising energy prices show, however, that there can be side effects to that strategy.
A falling dollar tends to push crude prices higher. Oil is bought and sold with U.S. currency, and when the dollar drops, anyone holding euros or other strong currencies can essentially buy more oil for less.
Even with energy demand flat, the price of oil and gasoline are being driven higher.
Benchmark crude for December delivery added 80 cents to settle at $80.40 a barrel Wednesday on the New York Mercantile Exchange. In London, Brent crude for December delivery added 78 cents to settle at $78.89 on the ICE Futures exchange.
Earlier in the day, the Energy Information Administration reported that oil and gasoline supplies dropped, a surprise to most energy analysts who believed that the amount of unused crude in storage would grow.
The report sparked a brief rally in crude, yet it also raised questions about why energy prices are rising right now. It isn't refiners, who turn crude into fuel, who are buying it.
The demand for gasoline in the United States is flat compared with last year, and demand at this time last year was dismal.
The economic crisis was still unfolding and hurricanes in the Gulf of Mexico smothered gasoline sales. Gasoline prices were in free fall at this point last year, and the cost for a gallon of gas had dropped from $4.11 over the summer to $2.39 by Nov. 4.
It's a different story this year.
Gas prices hit a new 2009 high last week, and gas stations charged an average of $2.68 a gallon on Wednesday. That is 22.3 cents more expensive than last month, according to auto club AAA, Wright Express and Oil Price Information Service.
On Wednesday the EIA said refiners cut operations even further. Every day last week refiners used 233,000 fewer barrels of oil than last year.
Still, crude prices continue to rise.
Last month the secretary general of the Organization of Petroleum Exporting Countries told the London Times that $80 per barrel was "a little bit high at this time of economic crisis." Abdalla El-Badri, of Libya, pointed out that there are millions of barrels of oil floating in huge ocean tankers, and said supply is not the problem.
He blamed oil speculators, as do others.
OPEC isn't "telling you that oil is a good buy at these prices," analyst Stephen Schork said. "The only people who are telling you that oil is worth $85 (a barrel) is Wall Street."
In other Nymex trading, heating oil rose 1.69 cents to settle at $2.0902 a gallon. Gasoline for December delivery climbed 1.23 cents to settle at $2.0127 a gallon. Natural gas for December fell 19.7 cents to settle at $4.725 per 1,000 cubic feet.
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Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.
