For first time, oil hits $100 a barrel

ByJames R. Healey, USA TODAY

— -- The price of oil hit $100 a barrel in commodities trading Wednesday — the first time that's happened — and ended the trading day not far below that chilling mark, at $99.62 a barrel.

That's a hefty $3.64 jump from the previous closing price for benchmark West Texas Intermediate crude oil, leapfrogging the record $98.18 set Nov. 23.

In fact, oil has been in or near record territory for two months, but Wednesday's jump was surprisingly large and created enough momentum to pull wholesale gasoline and heating oil prices to records that quickly will translate into big retail price boosts.

The striking prices prompted travel organization AAA to issue a warning that "record high prices will be paid by consumers for gasoline in the year ahead." The highest in AAA records is a nationwide average $3.227 on May 24. The U.S. average Wednesday was $3.049 a gallon, AAA said — 72.7 cents more than a year ago.

The price of oil accounts for roughly two-thirds of the pump price of gasoline, according to the U.S. Energy Information Administration.

High prices this time of year are especially unsettling, AAA spokesman Geoff Sundstrom noted, because fuel prices typically don't start their seasonal climb until spring. That's when driving increases, raising demand for gasoline.

Also, refineries are required by law to switch to a type of clean-air gasoline by June 1 every year. That fuel is more expensive to make, driving up prices. And refineries sometimes cut production temporarily to make the switch, putting more pressure on supplies.

Oil prices have been in the high $90s for weeks, but the jump to the $100 mark Wednesday came as a reminder that fuel prices might have no ceiling.

"Headlines about oil hitting $100 will unnerve people. They'll expect gasoline prices to go higher," says Mark Vitner, senior economist at Wachovia. wb

"But in terms of meaningful economic impact, I don't think (Wednesday's) move is significant; $100 oil isn't that much more than $98 oil," he says.

Blamed for the jump: declining oil inventories, political tension in oil-producing regions and a weak U.S. dollar — key because oil is priced in dollars globally.

How long and how high will fuel prices rise?

"We're in a vicious cycle on commodity prices," Vitner says. "Higher commodity prices directly contribute to inflation, but the fears of higher inflation are causing investors to put more money into commodities, driving up prices."

The oil price jump came against this backdrop:

•Manufacturing activity in the USA probably quit expanding in December and began to contract, according to a study published Wednesday.

•The Federal Reserve says the economic outlook is "unusually uncertain" and might need "substantial" interest rate cuts as a tonic, according to minutes of the Dec. 11 Fed meeting, made public Wednesday.

•Investors gagged on the negative news and sold stocks, pushing down the Dow Jones industrial average nearly 221 points, a loss of 1.7%.

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