Oil passes $126 on Venezuela concerns
Foreign Desk Report

NEW YORK—Oil rose above $126 a barrel for the first time Friday, bringing its advance this week to nearly $10, as investors questioned whether a possible confrontation between the U.S. and Venezuela could cut exports from the OPEC member. Gas prices, meanwhile, rose above an average $3.67 a gallon at the pump, following oil’s recent path higher.
On Friday, The Wall Street Journal published a report that suggested closer ties between Venezuelan President Hugo Chavez and rebels attempting to overthrow Colombia’s government. Chavez has been linked to Colombian rebels previously, but the paper reported it had reviewed computer files indicating concrete offers by Venezuela’s leader to arm guerillas. That appears to heighten the chances that the U.S. could impose sanctions on one of its biggest oil suppliers.
“If we put on sanctions, I’m sure Chavez would threaten to cut off our oil supply,” said Phil Flynn, an analyst at Alaron Trading Corp. “Obviously that would have a major impact on oil prices.” Light, sweet crude for June delivery vaulted to a new record of $126.20 in morning trading on the New York Mercantile Exchange before retreating to trade up $1.09 at $124.78 a barrel.
Even if Chavez cut oil shipments to the U.S., Venezuelan oil would still make its way to the U.S. via middle men, who would buy it from Venezuela and resell it to the U.S., Flynn said. But that new layer in the supply chain would bump up costs.
Oil prices also were boosted Friday by the dollar, which declined against the euro. The European Central Bank said it was unlikely to consider interest rate cuts to cool the strong euro against the slumping dollar. Investors often buy commodities such as oil as a hedge against inflation when the greenback falls. A weaker dollar also makes oil less expensive to overseas investors. Many analysts believe the doubling in oil prices since this time last year has much to do with the dollar’s protracted decline. Another school of thought thinks tight global supplies of oil, driven by growing demand in countries such as China, Brazil and India, is the primary factor driving oil higher.
Oil’s surge is pushing retail gas prices higher. The national average price of a gallon of regular gas jumped 2.6 cents overnight to a record $3.671 a gallon according to a survey of stations by AAA and the Oil Price Information Service. The Energy Department expects prices to peak at a monthly average of $3.73 in June, though many analysts say national average prices could rise as high as $4. Consumers in many regions, including parts of California and Hawaii, are already paying that much. Demand for diesel fuel is also growing worldwide, but supplies of distillates, which include diesel and heating oil, fell unexpectedly last week, the Energy Department said Wednesday.