Oil hits $80, then falls first time in a week

Oil futures closed lower for the first time in more than a week Tuesday, but only after passing $80 per barrel and pulling retail gasoline prices higher.

The impact of the U.S. currency became abundantly clear midmorning when crude prices fell by 1 percent as soon as the dollar went into positive territory against the euro.

Crude prices have risen swiftly this month, moving in the opposite direction of the dollar. When the dollar loses value, crude becomes very attractive as an investment. Crude is traded in dollars, so it essentially gets cheaper when the U.S. currency is weak.

Benchmark crude for November delivery fell 52 cents to settle at $79.09 on the New York Mercantile Exchange. Earlier in the day, a barrel ran as high as $80.05 as the euro came close to trading for $1.50.

It was the first time since last October that crude climbed so high.

The November contract expires at the end of trading Tuesday. Oil for December delivery also was down, falling 84 cents to settle at $79.12.

“Once we hit $80 now the question is what’s next?” PFGBest analyst Phil Flynn said.

For one thing, prices at the pump could continue to rise. Gas prices began to catch up to rising crude last Tuesday.

Retail gasoline rose 1.3 cents overnight to an average of $2.577, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are now 9.9 cents higher than a week ago, but 34.6 cents below year-ago levels.

The average price for gas across the country has hovered below $2.50 since the end of September, but began to climb by a couple of cents every day since last week.

In the next week or so, consumers for the first time will probably see gasoline rise above comparable periods last year because prices at this point in 2008 were going into free fall as the economic crisis worsened.

Pump prices fell well below $2 by the end of 2008, something that is very unlikely to happen this year with crude prices rising and refiners making less gasoline.

That may be even more evident Wednesday when the government releases oil and gasoline inventory data. Crude in storage is expected to rise because demand remains weak. Gasoline, however, is expected to fall by more than 2 million barrels because refiners have cut production.

There is little demand for gasoline and refiners are seeing profit markets disappear due to rising oil prices.

At least in the short term, that could mean more expensive gasoline, but prices are unlikely to get close to $3, at least over the winter.

Gasoline consumption is showing signs of edging higher compared with a year ago when the financial crisis helped drive the economy further into a recession, but remain below levels from October 2007.

Consumption rose 3.9 percent for the week ended Friday from a year ago and reached its highest levels since the week ended Aug. 21, according to the weekly MasterCard SpendingPulse report.

Consumption year to date is now up 0.4 percent compared with 2008.

MasterCard’s report is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and check.

In other Nymex trading, heating oil fell less than a cent to settle at $2.0473 a gallon. Gasoline for November delivery rose by less than a cent to settle at $1.9872 a gallon. Natural gas for November delivery rose 32.6 cents to settle at $5.161 per 1,000 cubic feet.

In London, Brent crude for December delivery fell 53 cents to settle at $77.24 on the ICE Futures exchange.

Associated Press writers Pablo Gorondi in Budapest and Alex Kennedy in Singapore contributed to this report.