Oil breaks $100, hits new all-time high

Crude soars as investors weigh the possibility of OPEC production cuts; Texas refinery explosion may have also lifted prices.

NEW YORK (AP) -- Oil prices hit new record highs Tuesday as a Texas refinery fire and fears of an OPEC production cut pushed crude to settle at over $100 a barrel for the first time ever.

U.S. crude for March delivery jumped $4.51 to settle at $100.01 a barrel on the New York Mercantile Exchange, topping the previous settlement record of $99.62 set Jan. 2.

Oil also hit a new all-time trading high of $100.10 a barrel, besting the previous high of $100.9 set Jan. 3.

A weekend refinery explosion in Texas and the possibility that OPEC will cut production next month are driving prices higher, although analysts say there isn't a single factor to explain the move.

The refinery in Big Spring, Texas is owned by Alon USA. It processes nearly 70,000 barrels of oil a day. Officials say it could be closed for as long as two months.

"The refinery fire in Texas is making people a little concerned," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.

March gasoline jumped 11.4 cents to $2.6078 a gallon, and March heating oil rose 10.41 cents to $2.751 a gallon.

The dollar fell Tuesday, giving investors another reason to buy oil. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

For the moment, investors appear to have put aside concerns about the economy that have sent oil prices down into the mid-$80 range twice since crude peaked above $100 last month. Traders are instead focused on the Organization of Petroleum Exporting Countries, which will meet early next month to map out production plans, and Venezuela, where President Hugo Chavez made conflicting statements this weekend about the country's legal dispute with Exxon Mobil Corp. (XOM, Fortune 500)

OPEC could move to cut production in the second quarter, typically a period of low demand, though many analysts feel that's unlikely. In Venezuela, Chavez said he was not serious about an earlier threat to cut oil sales to the United States, but also threatened to sue Exxon Mobil. The world's largest oil company is fighting Venezuela's nationalization of an oil project, and recently convinced several courts to freeze $12 billion in Venezuelan oil assets.

None of the news is enough to justify a nearly $3 a barrel jump in the price of crude, said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm. Echoing other analysts, Cordier argued that the oil market is in the process of "decoupling" from oil's supply and demand fundamentals. He said investors drawn by the falling dollar and momentum are pushing oil prices sharply higher despite reports last week from the Energy Department, OPEC and the International Energy Agency which all cut oil demand growth predictions for this year.

"Everyone concurs that we've got smaller demand coming in the U.S.," Cordier said.

Retail gas prices, meanwhile, jumped 1.8 cents to a national average price of $3.032 a gallon Tuesday, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, are following oil prices higher. The Energy Department expects gas prices to peak near $3.40 a gallon this spring.

Other energy futures also rose Tuesday. March natural gas jumped 30.1 cents to $8.961 per 1,000 cubic feet. Analysts said prices were supported by forecasts for cooler weather, but that futures were also following oil prices higher.

In London, Brent crude for April delivery rose $3.25 to $98.16 a barrel on the ICE Futures exchange.

My sister can’t manage her money

Finances can be a touchy subject among family members. If you try to offer help, proceed with caution, says Money Magazine’s Walter Updegrave.

Question: My 53-year-old unemployed sister has recently received a small amount of money, probably $5,000 to $10,000. She wants to know how to invest it, but she finds financial matters confusing. I’ve tried to help her before, but like many people who are waiting for the big lottery win, she seems to lack the discipline to manage money effectively. I want to help her, but I struggle advising her and other family members because of the huge gap between my financial status and theirs. Is there some wise advice I can give to someone in her circumstances? –Ken, Colorado

Answer: Your sister isn’t the only one who needs to reconsider how she’s dealing with her shaky financial situation. You do too.

I’m sure it’s frustrating that financial concepts that are so self-evident to you - spend less than you earn and then invest sensibly to build wealth for the future - don’t seem to take with her. But having grown up in a family that struggled financially, I can tell you that it’s no easy task to apply these ideas to the reality of your life when you’re having a hard time just scraping by day to day.

You’ve got to realize that helping your sister become more financially secure isn’t just a matter of imparting financial wisdom. If you want to help her change her behavior and improve her situation, you’re also going to have to be patient and sensitive to what she’s going through.

So with that in mind, what sorts of things should you be doing to help out your sibling financially?



Long-term investing
Let’s start with her windfall. If after talking to your sister you think there’s a realistic chance that she’ll be able to invest some of this money for the long-term, then you should help her get it into an investment that requires very little attention on her part, most likely an asset allocation or target-date retirement fund. This way she gets a fully diversified portfolio with no effort on her part. You can find asset allocation funds by typing asset allocation into the Quotes box at Morningstar.com. For a target-date retirement fund, check out our Money 70 list of recommended mutual funds.

But given your sister’s precarious financial situation, I think there’s a good chance she won’t be able to take the long-term approach with this money. I suspect she’ll have to draw on it fairly regularly for any number of reasons. If that’s the case, then she probably should have all or nearly all of it in an investment that offers security of principal and relatively easy access.

Liquid cash
Normally, I’d say a money-market fund would fit the bill, but you don’t want to make it too easy for her to get at this money. So you might recommend that your sister put a portion of her windfall in a money-market fund and spread the rest among CDs with maturities ranging from six months to two years. This way she can get to the CD money if she really needs it, but the prospect of being docked for an early-withdrawal penalty may make her less apt to raid the CDs for anything less than a true emergency. And if it turns out your sister does need some of her CD funds, then at least dividing the money among several CDs instead of putting it all in one would save her from having to pay the prepayment penalty on her entire stash.

Without being too pushy, you should try to help your sister set up these accounts. Otherwise, it might not get done. Earning a high return isn’t your top priority here; making sure the money makes it into the accounts is. But you and your sister can assure that she at least gets a competitive return on this money if the two of you sit down together and check out CD rates here and money-market fund yields here.



Planning for the future
After your sister finds work again, try to encourage her to begin saving on her own so she’ll have something to support her in retirement besides Social Security. If her next job has a 401(k) plan - and you can suggest that she look for one that does - try to persuade her to contribute at least enough to get any matching funds her employer may offer. If she doesn’t have access to a 401(k), then recommend that she contribute to an IRA.

Depending on how much she earns and how much she contributes to a 401(k) and/or IRA, she may be able to qualify for a Retirement Savings Contribution tax credit, which would lower her tax bill and make it more palatable for her to save. (For details on this credit, which maxes out at $1,000 for individuals and $2,000 for married couples, click here.)

Again, I think the chances of her pulling this off will increase dramatically if you actually guide her through the process of opening the accounts and help her choose the investments. But you also have to consider the possibility that you simply may not be the right person to help your sister. She may feel uncomfortable or embarrassed at being in the position of having to take financial advice from a sibling.

If that’s the case, you may be better off buying her some time with a financial planner who can go over her finances with her and get her started on a savings and investment plan. While most planners prefer long-term relationships, there are some who will work on an hourly or project basis, which would probably be more appropriate in your sister’s case. You can contact planners willing to work on that basis by clicking here.

There’s no guarantee that any of these suggestions - or for that matter, any other strategies - will work. But I don’t think it’s a waste of time to try. If you succeed, your sister will be better off financially. If you don’t manage to help her improve her financial situation, I think you’ll both still feel better than if you hadn’t tried at all.