Wednesday, April 23, 2008

Supply Scare Sends Oil Toward $120

Supply Scare Sends Oil Toward $120

Carl Gutierrez

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Oil was flirting with $120 on Tuesday, driven by a familiar theme: overseas supply concerns.

By late afternoon, light sweet crude for May delivery was up 13 cents to $119.50 on the New York Mercantile Exchange after a Royal Dutch Shell joint venture said it may have to cut deliveries in April and May after a pipeline attack in Nigeria. (See: "Oil Punches Above $117")

Oil's rise wasn't the result of oil alone, as the dollar weakened further and the National Association of Realtors reported a drop in both home sales and prices. (See: "U.S. Home Prices Tumble")

At the pump, the average price of a gallon of regular gas rose 0.8 cents Tuesday to a record $3.511, according to a survey of stations by AAA and the Oil Price Information Service. Although gas prices follow moves made by oil, gas is also being affected by falling supplies that comes with a seasonal switch made by refiners.

Oil's rise had a mixed, but largely positive effect on oil stocks, as the Energy Select Sector SPDR, an ETF that tracks energy shares, rose 4 cents to $84.85. Exxon Mobil rose 0.2% and ChevronMarathon Oil dropped 2.0% and Shell slipped 0.4%. The iShares Dow Jones Transportation Average, an ETF that tracks the performance of the transportation sector, fell 1.8%. lifted 1.4%, but

Oil's rise contributed to a tough day on the market, which, along with lukewarm earnings and the falling dollar, pushed the major indexes down. (See: "Wall Street Slides On Oil") Of course, investors tend to gravitate to alternatives such as oil when they feel stocks are more trouble than they're worth.

The high cost of oil has been drowning the highly oil-dependent airline industry. Airline stocks plunged Tuesday, after United Airlines parent UAL dropped the biggest earnings bombshell of the day, reporting a whopping first-quarter loss of $4.45 a share. United revealed plans to rein in costs in an effort to temper the impact of spiking jet fuel prices.

AirTran also announced that soaring fuel prices pushed it into the red during the first quarter, and kept it from enacting its expansion plans. (See: "Oil's A Drag For AirTran")

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