Oil Crosses $129 for First Time, Heads for $130

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Oil prices spiked to a new trading high Tuesday, sweeping toward $130 a barrel as supply concerns intensified the momentum buying that has lifted crude deeper into record territory. Gasoline, meanwhile, reached an average of $3.80 at the pump for the first time.The June contract for light, sweet crude traded as high as $129.60 on the New York Mercantile Exchange before settling back to $129.43, up $2.38. The imminent expiration of that contract created additional volatility in the market, and raised the very real possibility that crude could hit $130 before the end of the day, when the contract was ending.

Sean McGrath of Chicago fills his car at a gas station on Chicago's North Side Monday, May 19, 2008....

Sean McGrath of Chicago fills his car at a gas station on Chicago's North Side Monday, May 19, 2008. More gas and oil records fell Monday as retail fuel prices struck new highs and crude settled above $127 for the first time. A report released Sunday showed retail prices topped an average $4 a gallon for the first time in two metropolitan areas: Chicago and New York's Long Island.

(Charles Rex Arbogast/AP Photo)
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Oil's trek toward $130 coincided with the Labor Department's report of an unexpectedly sharp rise in wholesale inflation last month. The combination raised fears that inflation will slice into Americans' discretionary spending, and that sent stocks falling sharply on Wall Street.

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Retail fuel prices also shattered records. The national average price for a gallon of regular gasoline touched $3.80, according to AAA and the Oil Price Information Service, while diesel jumped nearly 2 cents to a record $4.54 a gallon. Gas prices are up about 19 percent from this time last year.

Jim Ritterbusch, president of oil trading advisory firm Ritterbusch & Associates in Galena, Ill., said oil prices were being supported by strong demand for diesel fuel in Asia, and a weakening of the U.S. dollar against the euro, which makes oil cheaper for some investors overseas.

"We're getting a combination of two price drivers this morning," he said.

Oil prices are now about twice as high as the were just a year ago. Prices have been propelled by a number of factors, including supply concerns, soaring global demand and a sliding dollar.

Industry observers in recent days have also pointed to especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on generators for power. The country also seems to be ramping up diesel imports ahead of the Olympics, analysts say, driving up prices.