Transcripts

What's Fueling Rising Oil Prices?

SUSIE GHARIB: Another day, another record high for oil prices. In New York trading, June crude futures settled just below $126 a barrel. That's after surging $2.27. Oil rose $10 this week mostly on concerns about supply, as well as renewed weakness in the U.S. dollar. Suzanne Pratt looks at why the sagging greenback has helped to ignite oil prices.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the last five trading days, the price of crude oil has hit a new record each and every day. Since last May, crude futures have nearly doubled and some experts now think $200 a barrel is a possibility within two years. Tight supplies of diesel are largely behind this week's surge in oil prices. Analyst Antoine Halff says continued weakness in the U.S. dollar has also fueled the rally.

ANTOINE HALFF, HEAD OF ENERGY RESEARCH, NEWEDGE: The idea is that commodities and oil, in particular have an intrinsic value that's solid, maybe even going up. So, if you invest in those assets, you hedge efficiently against currency depreciation, against inflation and so on.

PRATT: Since 2007, the dollar has lost about 14 percent versus the euro, while against the Japanese yen it's off nearly the same amount. Currency experts say America's anemic economy is behind the dollar's decline. The Federal Reserve has cut rates seven times since September to stave off recession and calm rattled markets. Those cuts have created a huge differential between rates in the U.S. and in Europe as the European central bank has left rates untouched. Societe Generale's Carl Forcheski says while it has gained in prominence, the euro is unlikely to replace the dollar as the world's premiere currency.

CARL FORCHESKI, HEAD OF CURRENCY TRADING, SOCIETE GENERALE: It's become a little more of a balance. Whether it's going to supercede the dollar, time will only tell. I don't think so, but it certainly has grown in its liquidity, availability, as well as attraction to a lot of multinational corporations here in the U.S. as well as in Europe.

PRATT: In recent days, there's been much talk of a rebound in the dollar. Even if that happens, experts believe oil prices will continue to rally. That's because they say the reverse correlation between oil and the dollar does not have a lengthy history.

HALFF: The fact is that that relationship is very tenuous; it's very fragile. In the last week, we've seen on some days the dollar go up against the euro and yet oil prices did go up.

PRATT: Surging oil prices continue to push gasoline prices higher. The national average for a gallon of gas climbed $0.33 in the past month and some now predict that national average could hit $4 next month. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.