NEW YORK - Oil prices fluctuated Tuesday, giving up an earlier advance and slipping as the American dollar held its gains against the euro and the U.S. Energy Department slashed its oil consumption projections.
Retail gasoline prices in the United States rose to a new record over $4.04 a gallon.
The U.S. dollar rose on supportive comments by Washington officials, prompting selling by investors who had bought commodities such as oil as a hedge against inflation. Also, a stronger dollar makes oil more expensive to investors overseas.
The Energy Department's monthly report, meanwhile, indicated that high prices are cutting oil consumption more than expected in the industrialized world. Consumption is now expected to fall by 240,000 barrels a day in 2008; last month, the department forecast consumption would be unchanged from 2007 levels.
The latest report calmed a market that earlier in the day sent oil up more than $3 per barrel on a projection by the International Energy Agency that global demand will continue to rise, especially in China.
Light sweet crude for July delivery was down 50 cents to $133.85 a barrel at midafternoon on the New York Mercantile Exchange.
The IEA monthly report cut its demand growth forecasts, projecting that global demand for petroleum products such as gasoline, diesel and heating oil will grow by 0.9 per cent, or 800,000 barrels a day, in 2008. That's down from the 1.2 per cent increase the IEA forecast earlier this year.
However, the IEA also said Chinese demand for fuel for reconstruction work in the aftermath of May's earthquake will boost China's overall oil demand by 5.5 per cent this year, a slightly higher forecast than in previous reports.
"A 5.5 per cent increase in one of the largest consumers of oil in the world is a lot of barrels of oil,'' said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
But the oil-price gains were difficult to sustain in the face of a stronger dollar, analysts said.
"You don't get a lot of ... additional buying when the dollar is strong,'' Ritterbusch said.
American gasoline prices, meanwhile, advanced another two cents into record territory Tuesday, reaching a national average of $4.043 a gallon, according to a survey of stations by AAA and the Oil Price Information Service.
Price-tracking website GasBuddy.com posted an average U.S. price of $4.063 a gallon, and said the average Canadian price Tuesday was C$136.991 a litre, up from $133.146 a week ago and $109.778 a year ago.
Gasoline prices are following crude futures higher, and aren't likely to stop rising until crude prices peak.
"When crude tops out, we'll finally start getting some relief at the pump,'' Ritterbusch said.
The market appeared to react little to reports Tuesday that Saudi Arabia has increased oil output by 500,000 barrels a day this quarter, 200,000 barrels a day more than previously thought.
"A couple hundred thousand barrels just isn't enough,'' Ritterbusch said.
