Oil futures retreated from record levels Wednesday as investors, rethinking crude's ability to keep climbing past $100, decided to cash in some of their profits from the market's huge advance.
Expectations that domestic oil supplies rose last week and hints that oil's latest trip into record territory may prompt OPEC to hold production steady weighed on prices. Goldman Sachs advised investors to sell oil futures to lock in profits, although the investment bank said it expects oil to rise to $105 a barrel by the end of the year.
New economic data Wednesday gave investors new reason to doubt oil's ability to sustain such high prices. The Labor Department said its Consumer Price Index, a measure of inflation, rose by 0.4 percent last month, more than economists expected. That jump may mean the Federal Reserve will limit the size of future interest rate cuts.
The Commerce Department, meanwhile, said construction of new homes and apartments rose by 0.8 percent in January, but that applications for building permits, an indicator of future activity, fell by 3 percent.
The latest signs that the economy is cooling come a week after the Energy Department, the Organization of Petroleum Exporting Countries and the International Energy Agency all lowered their oil demand growth forecasts for this year.
"Everybody's saying demand is going to fall off a cliff," said Fadel Gheit, an analyst at Oppenheimer & Co., in New York.
The contract for March delivery of light sweet crude, which expires later Wednesday, fell $1.10 to $98.91 on the New York Mercantile Exchange. On Tuesday, the contract jumped $4.51 to settle at a record $100.01 after earlier rising to a new trading record of $100.10. April crude oil, which will become the front-month contract on Thursday, fell $1.25 to $98.45 a barrel.
Tuesday's rally came on a paucity of solid news about oil supply and demand fundamentals. Many analysts blamed the spike on speculative investment flows into the oil market driven by a falling dollar. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. Falling interest rates tend to weaken the dollar; the prospect that Wednesday's inflation number may limit future Fed rate cuts boosted the dollar Wednesday, giving energy investors another reason to sell oil futures.
There are also concerns that high oil prices _ and the higher gasoline and heating oil prices they spawn _ are sewing the seeds of their own destruction by contributing to the economic slowdown.
"The price gains raise questions about their sustainability in the face of eroding fundamental strength," said Antoine Halff, an analyst a Newedge USA LLC in a research note.
At the pump, gas prices rose 2.1 cents to a national average of $3.053 a gallon Wednesday, according to AAA and the Oil Price Information Service. In it weekly survey, the Energy Department said regular gasoline rose 8.2 cents last week to an average of $3.042 a gallon. Retail gas prices, which typically lag the futures market, are following oil higher. Analysts and the Energy Department expect prices to peak this spring well above last May's record $3.227 a gallon.
Other energy futures also fell Wednesday. March gasoline slipped 4.34 cents to $2.5597 a gallon on the Nymex, while March heating oil fell 3.99 cents to $2.7215 a gallon. March natural gas fell 0.9 cent to $8.968 per 1,000 cubic feet.
In London, April Brent crude fell $1.51 to $97.05 a barrel on the ICE Futures exchange.
Expectations that domestic oil supplies rose last week and hints that oil's latest trip into record territory may prompt OPEC to hold production steady weighed on prices. Goldman Sachs advised investors to sell oil futures to lock in profits, although the investment bank said it expects oil to rise to $105 a barrel by the end of the year.
New economic data Wednesday gave investors new reason to doubt oil's ability to sustain such high prices. The Labor Department said its Consumer Price Index, a measure of inflation, rose by 0.4 percent last month, more than economists expected. That jump may mean the Federal Reserve will limit the size of future interest rate cuts.
The Commerce Department, meanwhile, said construction of new homes and apartments rose by 0.8 percent in January, but that applications for building permits, an indicator of future activity, fell by 3 percent.
The latest signs that the economy is cooling come a week after the Energy Department, the Organization of Petroleum Exporting Countries and the International Energy Agency all lowered their oil demand growth forecasts for this year.
"Everybody's saying demand is going to fall off a cliff," said Fadel Gheit, an analyst at Oppenheimer & Co., in New York.
The contract for March delivery of light sweet crude, which expires later Wednesday, fell $1.10 to $98.91 on the New York Mercantile Exchange. On Tuesday, the contract jumped $4.51 to settle at a record $100.01 after earlier rising to a new trading record of $100.10. April crude oil, which will become the front-month contract on Thursday, fell $1.25 to $98.45 a barrel.
Tuesday's rally came on a paucity of solid news about oil supply and demand fundamentals. Many analysts blamed the spike on speculative investment flows into the oil market driven by a falling dollar. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. Falling interest rates tend to weaken the dollar; the prospect that Wednesday's inflation number may limit future Fed rate cuts boosted the dollar Wednesday, giving energy investors another reason to sell oil futures.
There are also concerns that high oil prices _ and the higher gasoline and heating oil prices they spawn _ are sewing the seeds of their own destruction by contributing to the economic slowdown.
"The price gains raise questions about their sustainability in the face of eroding fundamental strength," said Antoine Halff, an analyst a Newedge USA LLC in a research note.
At the pump, gas prices rose 2.1 cents to a national average of $3.053 a gallon Wednesday, according to AAA and the Oil Price Information Service. In it weekly survey, the Energy Department said regular gasoline rose 8.2 cents last week to an average of $3.042 a gallon. Retail gas prices, which typically lag the futures market, are following oil higher. Analysts and the Energy Department expect prices to peak this spring well above last May's record $3.227 a gallon.
Other energy futures also fell Wednesday. March gasoline slipped 4.34 cents to $2.5597 a gallon on the Nymex, while March heating oil fell 3.99 cents to $2.7215 a gallon. March natural gas fell 0.9 cent to $8.968 per 1,000 cubic feet.
In London, April Brent crude fell $1.51 to $97.05 a barrel on the ICE Futures exchange.
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