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May 06, 2008 02:17 PM
NEW YORK – Oil futures blasted to a new record over US$122 a barrel today, gaining momentum as investors bought on a forecast of much higher prices and on any news hinting at supply shortages. Retail gas prices edged lower, but appear poised to rise to new records of their own in coming weeks. A new Goldman Sachs prediction that oil prices could rise to $150 to $200 within two years seemed to motivate much of today's buying, although a falling U.S. dollar and increasing concerns about declining crude production in Mexico and Russia contributed, analysts say. Light, sweet crude for June delivery jumped to a new record of US$122.47 a barrel before retreating slightly to trade up $1.29 at $122.26 on the New York Mercantile Exchange. Oil prices have nearly doubled from about $62 a barrel a year ago, which Goldman sees as a sign that the world is in the midst of a "super spike" in oil prices. Analyst Arjun Murti said in a research note released Monday that prices would ultimately force demand to fall sharply. Not everyone shares Goldman's view. Tim Evans, an analyst at Citigroup Inc., countered Goldman's analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable. James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com, said Goldman's prediction isn't necessarily new: "We've heard numbers like these out of Goldman Sachs, especially over the last 12 months." Indeed, it's not the first time Murti has espoused a super spike theory; in an April 2005 note, he predicted the oil market was in the early stages of an unprecedented rally that would send prices from a then-record of about $57 a barrel to $105. But some investors respond to such predictions by buying, Cordier said. A falling dollar today also gave traders reason to buy. Investors often buy commodities such as oil as a hedge against inflation when the dollar falls, and a weaker greenback makes oil cheaper to investors overseas. Many analysts feel the dollar's protracted decline is the real reason oil prices have nearly doubled since last year. Cordier said investors are also increasingly concerned about falling oil production in Russia and Mexico, which are both major oil producers. And prices are still supported by the concerns about supply disruptions in Nigeria and northern Iraq that first drove crude past $120 a barrel on Monday. Militant attacks in Nigeria over the weekend cut some production at a Royal Dutch Shell PLC facility. In Iraq, Kurdish rebels warned they could launch suicide attacks against American interests to punish the U.S. for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday. At the pump, meanwhile, the national average U.S. price of a gallon of regular gas slipped 0.1 cent overnight to $3.61 – or 95 cents US a litre – according to AAA and the Oil Price Information Service. Analysts are split over how high gas will go; while prices have slipped lower since May 1, leading some analysts to say gas is close to peaking, others predict the fuel will follow oil's upward surge. In Canada, the average price of unleaded gasoline was C$1.26.5 a litre, according to GasBuddy.com, a website that tracks North American pump prices. "You're going to see new highs for gas prices, probably for the weekend," said Cordier, who predicts an average price of $4 a gallon in the coming weeks. In other Nymex trading today, June gasoline futures rose 5.58 cents to $3.1087 a gallon after earlier setting a new trading record of $3.1163. June heating oil futures rose 5.32 cents to $3.3597 a gallon after rising to their own trading record of $3.3634, and June natural gas futures rose 16 cents to $11.338 per 1,000 cubic feet. In London, June Brent crude futures rose $2.59 to $120.72 on the ICE Futures exchange.
OCEAN VIEW, Hawaii -- For eight years, Tony and Sam Bayaoa have grown thousands of bright red, yellow and pink protea flowers on their farm. Then in March, Kilauea volcano opened a new vent and began spewing double the usual amount of toxic gas. Now about 70 percent of their crop is dried, brown and brittle. "The first reaction was -- did someone poison the plants?" said Tony Bayaoa, whose two-acre farm is 35 miles from the volcano. "I've lost my livelihood." Big Island crops are shriveling as sulfur dioxide from Kilauea wafts over them and envelops them in "vog," or volcanic smog. People are wheezing, and schoolchildren are being kept indoors during recess. High gas levels led Hawaii Volcanoes National Park to close several days last month, forcing the evacuation of thousands of visitors. Residents of this volcanic island are used to toxic gas. But this haze is so bad that farmers are thinking about growing different crops, and many people are worrying about their health. When educator Ann Peterson, of Kona, went to the bank last week, she and the teller were making the same noises in their throats. They looked at each other and said in unison, "Vog!" Kilauea, on the Big Island, has been erupting continuously since 1983. But in mid-March, a new vent formed at the summit, giving Kilauea two large sulfur-dioxide outlets instead of one. Sulfur dioxide, a pollutant that is also generated by burning coal and oil, can lead to asthma and other respiratory illnesses and aggravate lung and heart disease. When combined with dust and sunlight, it makes vog. Mixed with atmospheric moisture, it produces acid rain. Exceptionally thick gray-white vog has hovered over parts of the Big Island for weeks, particularly those areas downwind of the crater. The wind has blown vog to Oahu, some 200 miles to the north, bathing Honolulu in a light haze. (The vog is no threat to the U.S. mainland, some 2,500 miles away.) Some crops are doing fine. Coffee and macadamia nuts, two of the Big Island's mainstays, appear unaffected. Koa and ohia trees are healthy, but eucalyptus leaves are turning brown, as are Asiatic lilies. Protea may be the hardest hit, though experts don't know why. The hand-size blossoms are used in tropical floral arrangements and are a $1.8 million-a-year business in the islands. Kelvin Sewake of the University of Hawaii College of Tropical Agriculture said he is not sure if it is the gas or acid rain that is killing the plants. He said Big Island protea growers have always suffered sulfur dioxide "burns," but he has never seen it this bad. One reason the vog is worse is that the new vent is farther inland than the older Puu Oo vent on the mountain's seaside slope. While gas from the Puu Oo vent often blows out to sea, the new plume is more likely to hit farms and communities in concentrated form. Copyright © 2008 The Seattle Times Company
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