Oil Breaks $50, Poised to Jump?
May 1st, 09
Crude oil prices rose throughout this week despite reports of an inventory surplus and indications that the nation is consuming less oil than it has in years. There are some signs that the slide experienced in the manufacturing sector appears to be slowing.
Heavy industry is a large consumer of oil and gas and accompanying the global layoffs and production shutdowns have been increasing stockpiles of unused petroleum. The manufacturing sector’s health report was issued based on factors such as inventories, employment, production, prices, new orders, imports and exports.
National stockpiles of crude oil have reached levels not seen since 1990. The Energy Information Administration (EIA) reported that oil inventories increased by 4.1 million barrels, more than twice what was expected by analysts. Although the report that storage facilities are swollen with stockpiles of crude shouldn’t come as s surprise, a drop in gas inventories came rather unexpectedly. The EIA reported refineries continuing to cut back on operations, operating at 82.7% of capacity, in part to match supplies with plunging demand. Refinery cutbacks will most likely lead to higher gas prices, but it will be very unlikely to see prices remotely close to the levels experienced last summer.
On the whole, the rising crude storage has helped keep prices at the pump relatively flat, with the national average for a gallon of gasoline at $2.054. As Memorial Day – the unofficial start of the summer driving season – approaches, gasoline stores reported an unexpected draw in supplies in preparation. On this news and on reports that Americans are filling up their tanks at roughly the same rate as the previous year, gasoline futures for June delivery rose 5.07 cents to $1.5165 a gallon. Gasoline is expected to rise as summer approaches, with the national average expected to reach $2.25 per gallon at the peak of the season. Travel researchers report that people are leaning more conservative with their vacation plans and even as people are driving billions fewer miles due to the recession, those who plan on driving this summer will most likely stay closer to home.
For weeks now, oil prices have treaded the $50 a barrel mark, and the first day of May saw benchmark crude for June delivery rise nearly $2 to break $53 a barrel – the highest it has reached in more than two weeks. There was light trading in Europe and Asia because of holidays there, and many attribute low volumes to more volatility. Many experts believe the market has hit the bottom with energy prices fairly stabilized in the last few weeks. One analyst believes that prices cannot move abruptly in either direction without some kind of economic jolt. One possible source could be OPEC, which meets May 28th. OPEC has announced output quota reductions of 4.2 million barrels a day since September, and traders will be looking for signs for another potential production cut. OPEC leaders have been open about seeking an oil price of $70 a barrel to fund their high-cost production fields, and if OPEC decides to call for new cuts there would be a good chance of breaking this $50 phase.