We Pay More at Pump Thanks to $100 Oil ; Gasoline Jumps 2 Cents Overnight As Crude Price Scales New Heights

By JOHN WILEN, THE ASSOCIATED PRESS

NEW YORK Oil futures rallied again Wednesday, pushing briefly past $101 a barrel after the Federal Reserve lowered its forecast for economic growth this year, convincing energy investors that the central bank will slash interest rates further. At the pump, meanwhile, gas prices rose another 2 cents overnight.

The Fed said damage from the housing slump and problems in the credit markets will slow economic growth to between 1.3 percent and 2 percent this year, down from a previous forecast for GDP growth of between 1.8 percent and 2.5 percent.

Oil investors can interpret such news in one of two ways: Selling on concerns that the economy, and thus demand for oil, is cooling down; or buying on the prospect that interest rates will fall, weakening the dollar and feeding new buying of oil futures. On Wednesday, they definitively chose the latter view.

“The Fed was … the catalyst to get us going here,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The contract for March delivery of light sweet crude, which was expiring later Wednesday, rose 73 cents to settle at a record $100.74 on the New York Mercantile Exchange after earlier rising as high as $101.32, a new trading record. On Tuesday, the contract jumped $4.51 a barrel.

Falling rates 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. In the moments after the Fed released its forecast, oil prices spiked sharply higher.

“This is unbelievable,” Flynn said.

Earlier, crude prices fluctuated in part due to low trading volumes. Trading in the expiring March contract was about 10 percent of the level of trading in April crude oil, which will become the front-month contract today. When volumes are low, price moves can be exaggerated. April crude settled unchanged at $99.70 a barrel after rising as high as $100.86 earlier.

Oil prices are still within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

Despite the return of $100 oil, and now $101 oil, there are concerns that high oil prices and the higher gasoline and heating oil prices they spawn are sowing the seeds of their own destruction by contributing to a slowdown in the economy.

“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.

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