Gas hits $3.60 a gallon, crude nears $120 on supply outages

At the pump, the national average price Americans pay to gas up rose 0.4 cent overnight to a record $3.603 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. While prices are 66 cents higher than a year ago, their rate of increase has slowed some since last week, when prices jumped more than 2 cents a day several times.

That could suggest that a price peak is near, analysts said.

"I've got to think we're close to the end on increases," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Cambridge, Mass.

However, Lynch thinks prices could rise another 10 cents to 15 cents before they reach that peak and begin falling.

Gas prices are rising in part because refiners are making the seasonal switch-over from making winter-grade gasoline to the more expensive, but less polluting, fuel they must sell during the summer. Supplies tend to fall while refiners are doing this as they try to sell off all of their winter gasoline.

But short supplies of a key ingredient used in the manufacture of summer grade gas have contributed to the increases, as has an intentional slowing of gasoline production by many refiners due to low profit margins on the fuel. Refiners have to buy the crude they turn into gasoline and other fuels, and crude prices have risen much faster over the past year than gas prices.

Light, sweet crude for June delivery rose to a record $119.93 a barrel in electronic trading on the New York Mercantile Exchange overnight, then retreated to trade up 59 cents at $119.11 a barrel. Oil prices alternated between positive and negative territory, buffeted by the dollar, which was mixed against foreign currencies, and concerns about supplies.

When the dollar holds its ground, commodities such as oil become less effective hedges against inflation. Many analysts believe oil's meteoric rise from around $65 a barrel a year ago is due in large part to a protracted decline in the value of the greenback.

Energy investors will be closely watching the Federal Reserve's decision Wednesday on interest rates; lower rates tend to weaken the dollar. If, as expected, the Fed lowers a key interest rate by another quarter percentage point and signals that it will temporarily hold off on any future rate cuts, the dollar could strengthen, and oil might fall.