May 6, 2011 in Business, Nation/World

Gas price to drop as oil joins commodities plunge

Associated Press

NEW YORK — Just shy of $4 a gallon, average U.S. pump prices are about to start falling and could hit $3.50 by summer.

You probably won’t see a change at the gas station this weekend. But relief will come soon because oil prices fell 15 percent this week, the steepest decline in two and a half years. Oil hit a two-year high of $114.83 in Monday trading. It closed today at $97.18.

The plunge was part of a sharp sell-off across in commodities this week. Analysts say investors — demonized as “speculators” by some market watchers — got nervous that oil, metals and grains had risen over the past few months to unrealistic heights.

Their rush to sell knocked silver prices down 28 percent, sugar down 13 percent and natural gas down 10 percent.

While analysts cited reasons specific to each commodity, they had one common explanation for the pullback: The strengthening U.S. dollar.

Commodities such as oil and silver are bought and sold in dollars. When the dollar is weak, those commodities look cheaper to holders of foreign currency so they buy. Conversely, when the dollar rises, commodities look more expensive. So they sell.

Speculators, knowing this, tend to sell commodities and buy dollars if they anticipate the dollar will rise. That amplified this week’s retreat in prices.

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