Oil Prices Fall, but Natural Gas Rises

03/31/2008

NEW YORK (AP) - Crude oil prices extended their decline Monday, joining an overall selloff in commodities, while natural gas prices rose as lingering cool temperatures kept demand strong.

Light, sweet crude for May delivery dropped $3.56 to $102.06 a barrel on the New York Mercantile Exchange.

Commodities in general were declining, with the price of gold down $12.30 at $918.30 on the Nymex.

In recent weeks, traders have poured money into commodities as a hedge against inflation and a weakening dollar, which fell further Monday. But as the first quarter came to a close and contracts for heating oil were set to expire, investors unwound some of those trades. Market observers said the sales may have been to settle open future positions and lock in profits, or simply because of a lack of headlines that would entice fresh buying.

"We may see some confidence return to the dollar, and all this money that embraced commodities as a hedge could go away," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Crude prices were also responding to news that a bombed Iraqi oil pipeline was back online, analysts said. The attack on the pipeline, which was repaired soon afterward, had raised concerns of a plunge in Iraqi exports.

"The oil price has been pulling back because the disruption in the oil pipeline supply in Iraq has been resolved," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Meanwhile, natural gas for May delivery jumped 29.5 cents, or 3 percent, to $10.095 per 1,000 cubic feet on the Nymex.

Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill., said supplies of the heating, cooking and power-generation fuel typically increase at this time of year as warmer springtime temperatures slow demand.

"That process is going to be delayed this year due to the cold weather," he said. "We've virtually erased a huge supply surplus that existed at the beginning of winter."

Analysts are split on oil's direction. Many think prices will rise to new records in coming months as the dollar weakens further, but others say such high prices can't be sustained.

"We have huge speculative positions in oil," said Flynn, who believes prices are likely to move lower. "Some may call it a bubble, some may just call it overbought."

The dollar neared its all-time low against the euro Monday, tumbling as low as $1.5895 - just shy of its March 17 record of $1.5904 - before strengthening to $1.5871.

The Federal Reserve is expected to cut interest rates several more times this year, and lower interest rates tend to weaken the dollar. Many analysts say the weaker dollar has been largely responsible for oil's run to a record near $112 a barrel earlier this month.

At the pump, gasoline prices edged a tenth of a penny higher to $3.287 a gallon, according to AAA and the Oil Price Information Service.

In other Nymex trading, heating oil futures fell 4.25 cents to $3.0625 a gallon, while gasoline futures sank 9.16 cents to $2.6254. Brent crude futures fell $2.91 to $100.86 a barrel on the ICE Futures exchange in London.