Monday, March 17, 2008

Smile, Everything is Getting Better. Not!

This story can be found in its entirety at http://news.yahoo.com/s/ap/20080317/ap_on_bi_ge/oil_prices

By JOHN WILEN, AP Business Writer 2 hours, 11 minutes ago

NEW YORK - Oil prices fell sharply Monday, pulling back at least temporarily from record levels as investors feared that the financial crisis that forced the sale of Bear Stearns Cos. is a sign of deep economic troubles.

Crude's plunge came even as diesel prices rose to a new record above $4 a gallon, and gas prices remained high. Diesel, used to transport the vast majority of the nation's goods, rose 1.3 cents to a national average of $4.002 a gallon Monday, according to AAA and the Oil Price Information Service. The national average price of a gallon of gas, meanwhile, dipped slightly to $3.283 a gallon, but remains 73 cents higher than a year ago.

Oil's steep decline — falling $4.17 to $106.04 a barrel on the New York Mercantile Exchange — came hours after futures rose to a new trading high of $111.80 on the Federal Reserve's surprise Sunday move to lower a key interest rate by a quarter point. In the past several months, Fed rate cuts have fueled rallies in oil prices.

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 dollar is weak. Interest rate cuts, and even the prospect of future cuts, tend to weaken the dollar further.

But the mass selling Monday — despite the Fed's Sunday rate cut, the prospect of another cut at the Fed's regular Tuesday meeting, and the fact that the dollar dropped to new lows against the euro on Monday — could be a sign that the oil market's momentum has turned negative, analysts say.

"People are saying, well, things are a lot worse than we thought," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

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