Oil hits $82 per barrel as dollar plunges

Oil prices hit new highs for the year Wednesday just as the dollar fell to new lows against the euro, showing how much the weak U.S. currency has come to dominate energy markets.

Benchmark crude for December delivery rose $2.25 to settle at $81.37 a barrel on the New York Mercantile Exchange. Prices hit $82 at one point.

Gasoline futures spiked and Brent crude rose $2.45 to settle at $79.69 on the ICE Futures exchange.

The run-up in prices came within minutes of a government report showing that crude supplies in the United States are growing and that refiners are producing very little gasoline because consumers aren't using as much.

"The dollar obviously is the overriding factor," PFGBest analyst Phil Flynn said. "It's not about demand I can tell you that."

Refiners are shutting down plants, a combination of little demand and rising crude prices that wipe out profit margins.

That can have real consequences at the pump. The government reported Wednesday that gasoline supplies fell by more than 2 million barrels last week.

There is usually a lag between the direction of crude bought and sold on Nymex and the price that people pay for gasoline to fill up their cars.

Crude began to rise on Oct. 7, when a barrel cost less than $70. Prices moved higher for eight days in a row, nearly reaching $80.

Average retail gasoline prices started ticking higher one week later and a gallon has increased every day since, up about 12 cents in one week to $2.596 on Wednesday, according to auto club AAA, Wright Express and Oil Price Information Service.

A gallon is still 29 cents less than last year at this time, when gas prices were in full retreat.

There are concerns that spiking energy prices could stunt any economic recovery in Europe and the United States. Energy Secretary Steven Chu said Tuesday that crude prices at $80 per barrel right now is worrisome.

Even though the amount of crude in storage is well above normal for this time of year, it seems any movement in the dollar draws more money. Crude is priced in dollars, so it gets cheaper when purchased with yen, euros, the pound, or any other currency that advances against the dollar.

The dollar has lost 16 percent of its value since March and on Wednesday, someone holding a euro could trade it in for $1.50.

Demand for gasoline has risen over the past four weeks compared to the same period last year, but it's important to note that a pair of nasty hurricanes sent gas prices spiking in some parts of the country then and the crisis on Wall Street was in full bloom.

Flynn said the combination of record low interest rates combined with government attempts to stimulate an economy weak from recession have helped drive oil prices higher than the otherwise would given the glut of crude. That, in turn, could prove to be a drag on the economy in the form of higher gasoline and heating oil costs this winter.

"At what point are consumers going to be feeling the pain?" he asked.

In other Nymex trading, heating oil rose 5.8 cents to settle at $2.1053 a gallon. Gasoline for November delivery added 6.66 cents to settle at $2.0543 a gallon. Natural gas for November delivery gave up 6.1 cents to settle at $5.10 per 1,000 cubic feet.

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