- Title: USA: Oil prices hit another record
- Date: 17th May 2008
- Summary: (BN14) HOUSTON, TEXAS, UNITED STATES (FILE) (ACCESS ALL) VARIOUS OF AN OIL REFINERY
- Embargoed: 1st June 2008 13:00
- Location: Usa
- Country: USA
- Topics: Economic News,Energy
- Reuters ID: LVA5GNDAKLJEVCCR5HX0MF9NZZ35
- Story Text: Oil prices hit another record and American consumer confidence sinks to a 28 year low.
Oil prices streaked toward $128 a barrel on Friday (May 16), knocking down U.S. stocks and the dollar, while a slump in U.S. consumer confidence to a 28-year low added to worries about the health of the U.S.
economy. On Friday, at the New York Mercantile Exchange, crude oil prices surged to a record $127.82 (USD) a barrel.
Ray Carbone, an energy trader with Paramount Options says, among other geo-political issues, the recent earthquake in China is adding to the speculation of higher fuel prices.
Carbone said: "We are really looking at a combination of factors.
In prime importance to me is the Chinese earthquake, which is a huge calamity, the scope of which is still not known and that's going to create a need for rebuilding and a need for power generation and they're not going to be able to use their ample coal supplies because of transportation issues. The dams are in question as far as the structural integrity goes, so China is going to need a lot of commodities. They are going to need building commodities, but they are also going to need energy. More and more each time to generate the electricity needed to rebuild the stricken areas."
In the United States, gas prices surged to more than $4 (USD) a gallon in some parts of the country. Many analysts expect gas prices to rise further as the summer driving season nears. Also, the summer hurricane season is about to begin, and Carbone says any major storm could cause a disruption in oil production and continue to drive up oil prices.
He says: "We're looking at a finite resource and we're looking at an unlimited demand potential, so I think over time we're going to see a volatile market with substantial pullbacks as we saw yesterday, but those are probably buying opportunities. I agree, we're going up. I think we are going a lot higher than we are now. It's just a question of how quickly, and that's going to be determined by many things including the weather as we go later into this season in the hurricane season."
Meantime, the Reuters/ University of Michigan preliminary index of consumer sentiment decreased to 59.5, the weakest level since June 1980. The same measure averaged 85.6 in 2007.
Consumer spending is the driving force behind the American economy, and rising fuel and food prices, combined with lower home values and fewer jobs are causing a financial strain for many already-anxious Americans spenders.
Robert Brusca, the chief economist of Fact and Opinion Economics says, "You have a budget, and you used to have a budget where some money went for rent, and some for food, and some for gasoline, and now all of a sudden a larger portion of this budget has got to go for your fuel expenditures, and what it means is you have less money left over to spend on other things. So the non-oil part of the economy gets starved for funds."
Consumer spending accounts for about two-thirds of the United States' gross domestic product.
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