Hewehi Thinks Oil To Reach $120

Oil futures retreated from a new overnight record above $103 as the dollar gained strength and Turkish forces withdrew from northern Iraq, removing two of the reasons underpinning crude's dramatic 19 percent rise from earlier this month.

But many analysts believe the declines may be temporary, and that oil is poised to rise above $103.76 a barrel. That's the price many believe to be oil's all-time high on an inflation-adjusted basis, set in early 1980 during the Iranian hostage crisis.

Gasoline and diesel prices, meanwhile, continued to soar. Gas prices rose 0.3 cent overnight to a national average of $3.164 a gallon, creeping closer to last May's record of $3.227 a gallon, according to AAA and the Oil Price Information Service. Diesel prices jumped 1.5 cents to a new record national average of $3.642 a gallon.

While most Americans fuel their cars with gasoline, most of the products they buy are transported by trucks, trains and ships that burn diesel. While gas prices are unlikely to rise as high as $4 a gallon, diesel may well pass that psychologically important level this spring, boosting prices of nectarines, computers, clothing and virtually every other consumer product, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.

"It's everything that gets shipped," Kloza said of diesel fuel's impact on the economy. "That is the one that is much scarier."

Gas and diesel prices are following crude oil, which spiked to a new record of $103.05 overnight. In midday trading on the New York Mercantile Exchange, light, sweet crude for April delivery fell 44 cents to $102.15 a barrel.

The dollar rose against the euro Friday, reversing one of the factors that has attracted huge flows of investment capital to the oil market. 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 falling. That logic tends to reverse itself when the dollar weakens.

Also giving investors reason to sell was Turkey's decision to withdraw its forces from northern Iraq, which they invaded earlier this week in search of Kurdish rebels. Turkish attacks on Kurds in northern Iraq -- and the concern that Kurds would retaliate by cutting off oil supplies -- have helped propel oil to new records in recent months.

Traders also continue to fret over OPEC, which meets next week to consider production levels. The prospect that the Organization of Petroleum Exporting Countries might cut production levels has helped fuel oil's recent rise. But with prices holding above $100, most analysts now expect OPEC to hold production steady.

Despite oil's modest retreat Friday, many analysts believe the investment flows that have pushed prices higher this year are not about to dry up.

"We've just got a huge, huge speculative drive going on here," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill. "The fresh buying brings in new buying."

Many analysts believe the underlying fundamentals of oil supply and demand do not justify such high prices. Some predict speculative investing could push oil prices as high as $120, while others argue prices have formed a bubble, and could crash back to the $70 range.

Other energy futures also fell Friday. In other Nymex trading, March heating oil fell 0.35 cent to $2.8421 a gallon while March gasoline futures fell 1.57 cents to $2.48 a gallon. April natural gas futures fell 8.8 cents to $9.355 per 1,000 cubic feet.

In London, Brent crude futures fell 52 cents to $100.38 a barrel on the ICE Futures exchange

Oil $100

Oil prices held near $100 a barrel Thursday after hitting a record overnight as investors poured more cash into crude and other commodities as a hedge against inflation.

Oil futures on Wednesday pushed briefly past $101 a barrel after the U.S. Federal Reserve lowered its forecast for U.S. economic growth this year, convincing energy investors that the central bank will slash interest rates further.

"Investors are going into commodities for a safe haven, because they think commodities may perform better than equities and also may be hedges against inflation," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Lower interest rates can help the economy but tend to weaken the dollar, encouraging investors to shift funds into hard assets like gold or oil as a safeguard against inflation. After oil rallied above $100 a barrel, precious metals such as gold and silver also hit records.

The possible rate cut is also viewed as hopeful of bolstering a flagging U.S. economy, which would assuage fears of weakening crude demand.

"We are expecting the U.S. Federal Reserve will cut interest rates further," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "That will help mitigate against the risks of U.S. recession, and would likely be supportive for the oil price."

The March light, sweet crude oil contract, which expired Wednesday, rose overnight as high as $101.32 a barrel, a new trading record. It settled at a record close of $100.74 a barrel.

On Thursday, light, sweet crude for April delivery added 43 cents to $100.13 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. It was unchanged Wednesday at $99.70 a barrel.

Analysts said the rise this week in oil prices was not based on supply and demand fundamentals and that they expected increasing price volatility.

"We are in the spring season, when worldwide demand is typically lower and inventories are building. Yet we see a strengthening of oil," Shum said. "It's really a divergence."

Prices have surged on geopolitical factors such as the possibility that the Organization of Petroleum Exporting Countries may cut its output at a March 5 meeting.

"What that all means is that investors could move out of oil as quickly as they moved in and so this situation could be unstable and pricing could drop as fast as it has gained," he said.

Weighing on prices Thursday were expectations that the U.S. Department of Energy would report later in the day that U.S. crude inventories rose in the seven days to Feb. 15 for the sixth straight week in a row.

"The general expectation is that you'll see another increase in U.S. crude oil inventories," Moore said. "If there was an increase that would just take a bit of the edge off oil prices."

Crude oil inventories were expected to rise 2.9 million barrels, according to a Dow Jones Newswires survey of analysts' estimates.

Gasoline inventories were seen growing 1 million barrels while stocks of distillates, which include heating oil and diesel fuel, were expected to fall 1.5 million barrels.

Heating oil futures rose 0.33 cent to $2.7579 a gallon while gasoline prices added 0.53 cent to $2.5905 a gallon. Natural gas futures rose 0.5 cent to $8.97 per 1,000 cubic feet.

Brent crude added 36 cents to $98.78 a barrel on the ICE Futures exchange in London.

Associated Press business writer Thomas Hogue contributed to this story from Bangkok, Thailand.