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November 11, 2010

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  MoneyMorning.com/Oil_Prices

What's going on with oil? Well, as we will learn, it is going high!
º

Oil prices hit a new two -year high on Wednesday, after the US government reported
crude and petrol stockpiles declined last week.

The Energy Department said on Wednesday commercial crude oil inventories fell by
3.3 million barrels to 364.9 million barrels for the week ending November 5.

Natural gas inventories held in underground storage in the lower 48 states increased
by 19 billion cubic feet to 3.840 trillion cubic feet for the week ended November 5.
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The report sent benchmark oil for December delivery up $US1.09 to settle to $87.81
a barrel on the New York Mercantile Exchange.

Natural gas prices, meanwhile, fell 16.4 cents, about four per cent, to $4.046 per
1,000 cubic feet.

The amount of oil in storage remains above the average for this time of year, yet the
price is now at its highest level since October 2008, when the global financial crisis
was taking hold.

Oil prices have risen about 10.6 per cent this year, while crude supplies have
increased by 11.5 per cent.

Natural gas prices had been dropping as supplies increased, though recently they've
risen as the winter heating season approaches.

The government also said petrol inventories declined by 1.9 million barrels to 210.3
million barrels while demand over the past four weeks was up slightly, averaging 9.1
million barrels a day. That's an increase of 1.8 per cent from the year -ago period.

In addition, inventories of distillate fuel, which include diesel and heating oil, fell by
five million barrels, or three per cent, to 159.9 million barrels.

Oil prices have climbed steadily in recent weeks because the dollar has weakened
against other currenci es, largely because of the Federal Reserve's decision to pour
billions of dollars into a bond -buying program to stimulate the US economy.

Since oil is priced in dollars, a weaker dollar makes it more of a bargain for buyers
using euros or other currencies. Energy traders expect this to happen, so they buy oil
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when the dollar falls, boosting the effect.

Yet, oil was higher on Wednesday, even though the dollar was stronger as traders
concluded the inventory decline was a sign of an improving economy.

"The trend in crude supplies has been down now for more than a couple of months,"
said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"That's beginning to give us a glimmer that the economy is on the rebound."

In other Nymex trading i n December contracts, heating oil added 3.52 cents to settle
at $2.4419 a gallon and petrol gained 5.12 cents to $2.2362 a gallon.
In London, Brent crude added 63 cents to $88.96 a barrel on the ICE Futures
exchange.
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