NEW YORK — Oil and gasoline prices finally hit the brakes in May.
After surging to the highest levels since 2008, oil dropped 10 percent for the month and gasoline slipped nearly 4 percent.
The May slump will ripple through petroleum markets around the world, affecting fuel prices everywhere. Here's a look at how commodities fared in May, and where they may be headed.
Crude futures dropped early in May as a growing number of industry and government reports showed plentiful supplies and falling demand. The dollar grew stronger against other currencies during the month, and that helped push oil lower as well. Oil is priced in dollars and becomes less attractive to buyers with foreign currency as the dollar gets stronger.
Last May oil dropped about 17 percent, from just under $83 a barrel to $68, for similar reasons: a stronger dollar and rising supplies of crude.
On Tuesday the dollar weakened and helped oil recover some lost ground. Benchmark West Texas Intermediate crude rose $2.11 to settle at $102.70 per barrel on the New York Mercantile Exchange. That's down from a high of $113.93 per barrel at the end of April. In London, Brent crude added $2.05 to settle at $116.73 on the ICE Futures exchange.
Oil prices may climb further soon. The world is consuming more oil than ever, and the thirst for oil in China and other emerging economies will mean growing demand, analysts say. Investment banks like Goldman Sachs are betting that global supplies can only grow tighter in coming months, and that will push oil prices higher.
Goldman predicted that West Texas Intermediate crude will hit $135 per barrel by the end of 2012. Morgan Stanley said Brent will average $120 per barrel this year, while J.P. Morgan said Brent will be at $130 per barrel in the third quarter.
The national average for a gallon of regular gas peaked at $3.9845 in the first week of May before sliding 20.5 cents per gallon by the end of the month. Prices were down for the 19th day in a row on Tuesday, to $3.78 per gallon, according to AAA, Wright Express and Oil Price Information Service.
Gas prices almost always level off in summer as refineries crank up production and replenish supplies around the country. Refineries began to produce more gasoline toward the end of May after some were sidelined by unexpected problems caused by power outages and flooding. Pump prices were already falling by then because of lower oil prices. In addition, people were driving less and demand was down with the price of gas around $4 a gallon in most of the country.
The slump in oil helped gasoline fall sooner this year than previously. Gas prices in 2009 peaked in June and were the highest ever in July 2008, when the average was $4.11 per gallon. In 2010 gas dipped at almost the same time as this year. Pump prices were a little more than a dollar less on average a year ago.
Once they peak, retail gasoline prices usually go into a summer swoon. Tom Kloza, chief oil analyst at the Oil Prices Information Service, said pump prices should drop to between $3.50 and $3.60 per gallon in June.
Gasoline for future delivery dropped 11.4 percent in May as supplies started growing again. Futures peaked in April at $3.465 per gallon after random refining problems cut U.S. gasoline supplies for nearly three months. On Tuesday the contract for June delivery added 1.9 cents to settle at $3.0503 per gallon.
Natural gas prices have hovered around the same level since the beginning of 2009 with plenty of gas available to meet demand. Prices have risen recently as U.S. supplies dropped below the five-year average. The July contract gained 14.8 cents to $4.666 per 1,000 cubic feet on Tuesday.
Raymond James analyst J. Marshall Adkins said natural gas supplies declined as increased scrutiny of nuclear plants following the disaster in Japan forced utilities to rely more on natural gas-burning generators. Adkins doesn't expect that to last. He says natural gas is headed for a late summer collapse back to about $3.75 per 1,000 cubic feet.