Crude prices rebounded Thursday, shooting up nearly $3 a barrel to another new record as a falling dollar and the prospect of lower interest rates attracted fresh money to the oil market. Retail gas prices, meanwhile, rose closer to records above $3 a gallon.
A pair of dismal economic reports Thursday drew more money into the oil market, as did Federal Reserve Chairman Ben Bernanke's comments that the economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation. The Commerce Department said gross domestic product grew at only a 0.6% rate in the fourth quarter, below estimates and at only a fraction of the previous quarter's growth rate, while the Labor Department said applications for unemployment benefits rose by 19,000 last week, more than expected.
Rather than viewing such news as bad for oil demand, investors chose to see it as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy. Interest rate cuts tend to weaken the dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.
Light, sweet crude for April delivery rose $2.95 to settle at a record $102.59 a barrel on the New York Mercantile Exchange. Prices continued rising after the Nymex closed, setting a new trading record of $102.97.
Crude prices are within the range of inflation-adjusted highs set in early 1980. A $38 barrel of oil then would be worth $97 to $104 or more today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
On Thursday, the price of crude oil rose to an all new record high of almost $3 a barrel, and gas prices rose to around $3 a gallon. Crude oil prices are reaching all-time highs because the worth of the dollar is continuing to drop and because of the possibility of decreased interest rates. It is expected that the Fed will continue to cut interst rates in hopes of helping the economy as a whole. Lower interest rates tend to lower the value of the dollar, and crude futures help prevent the dollar from falling too much.
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