Wednesday, November 4, 2009

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 trade them in for U.S. currency buy more oil for less.
Benchmark crude for December delivery added 80 cents to settle at $80.40 a barrel Wednesday on the New York Mercantile Exchange.

The demand for gasoline in the United States is flat compared with last year, and demand at this time last year was dismal.

Last year at this time, the economic crisis was still unfolding and hurricanes in the Gulf of Mexico smothered gasoline sales. Gasoline prices were in free fall, and the cost for a gallon of gas had dropped from $4.11 over the summer to $2.39 on Nov. 4.

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, and every day last week they bought 233,000 fewer barrels of oil than last year.

Jet fuel demand also is down and so is demand for distillate fuels.

Still, crude prices continue to rise.