NEW YORK — Oil prices resumed their march toward $100 Tuesday, rising to a record over $98 a barrel as futures drew strength from a declining dollar, news of refinery problems and speculation that the Federal Reserve will again cut interest rates. Heating oil futures also rose to new records.
Gasoline prices, meanwhile, extended their decline at the pump.
Oil futures, which offer a hedge against a weak dollar, picked up momentum as the dollar fell to a new low against the euro and added to their gains after the Fed forecast slowing growth and tame inflation next year.
Light, sweet crude for January delivery surged $3.39 to settle at a record $98.03 a barrel on the New York Mercantile Exchange after rising as high as $98.30 earlier.
Crude oil prices are within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.
Gas prices fell 0.5 cents overnight, retreating further from their most recent spike above $3. At a national average of $3.09 a gallon, according to AAA and the Oil Price Information Service, gas prices have fallen 2.2 cents in a little less than a week. Last week, many analysts predicted prices would instead rise another 10 to 15 cents a gallon to catch up with surging oil prices.
“More than likely, (prices will) probably hold steady through the end of the year,” said Fred Rozell, retail pricing director at the Oil Price Information Service. “But that doesn’t mean you’re going to see relief in terms of lower prices.”
Because gas prices are closely tied to the price of crude, pump prices could start rising again if crude does reach $100 a barrel. Oil peaked last week at $98.62 a barrel before pulling back to the low to mid $90s.
Many analysts cite speculative investing fueled by the weak dollar as a key reason for oil’s rally.
“Expectations of interest rate cuts by the Federal Reserve are sending the dollar lower and this is once again drawing buyers … into the crude oil market,” said Addison Armstrong, an analyst at TFS Energy Futures LLC in Stamford, Conn., in a research note.
The Fed said it thinks business growth will slow next year, with gross domestic product growing between 1.8 percent and 2.5 percent. That’s less than the Fed’s previous projections. Meanwhile, overall inflation should fall next year to between a 1.8 percent and 2.1 percent increase, the Fed said.
“They just opened the door for the possibility of more rate cuts,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
However, the rising cost of energy could also persuade the Fed to either leave rates stable or raise them — the latter would likely lend support for the dollar and could pull oil prices back down.
Energy futures received an additional lift from word of problems at two oil facilities Tuesday. A Valero Energy Corp. refinery in Memphis, Tenn., that processes 180,000 barrels of crude a day has shut down for 10 days of unplanned maintenance and a Royal Dutch Shell PLC plant that converts bitumen from Alberta’s oil sands region into 155,000 barrels a day of synthetic crude oil was temporarily shut down due to fire.
Oil product futures surged on the news. December heating oil futures climbed 8.59 cents to settle at a record $2.6901 a gallon while gasoline futures for December delivery rose 6.99 cents to settle at $2.4515 a gallon.
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