Energy Department Report Sends Oil Prices Soaring

NEW YORK — Oil prices soared Wednesday as the dollar fell and the Energy Department issued a mixed report on the nation's fuel inventories. At the pump, gas prices rose to a new record over $4.05 a gallon.

The department's Energy Information Administration said oil inventories fell more than expected last week, and that gave oil a kick upward. But prices eased back to their pre-report levels as traders read further into the EIA's release and found that supplies of fuel such as gasoline and heating oil rose and demand fell.

Light, sweet crude spiked up nearly $5.50 to $136.80 a barrel soon after the report's release, then retreated to trade up $3.06 at $134.37 a barrel on the New York Mercantile Exchange.

The dollar's travails again sent oil prices rising. The euro bought $1.5539, up from $1.5449 Tuesday. Oil prices have closely tracked dollar moves; prices rose sharply last week when the dollar fell, then retreated more than $7 earlier this week as the dollar gained ground.

"It's been hand in hand with what the dollar's been doing," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is the primary reason oil prices have doubled over the past year.

The EIA said oil inventories fell by 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels.

But other elements of the report were considered bearish for prices, and pulled oil off its earlier highs. Supplies of gasoline and distillate fuels such as diesel and heating oil both rose last week, and demand for gasoline fell by 1.3 percent.

Retail gas prices, meanwhile, rose to another record Wednesday, rising 0.9 cent overnight to a national average of $4.052, according to a survey of stations by AAA and the Oil Price Information Service. Prices continue rising, despite falling demand, because the price of oil keeps moving higher.

While oil prices have slipped some from last week's trading record of $139.12 a barrel, analysts say gas prices still have some catching up to do, and could rise another nickel or so. Of course, if oil futures blast past that record and reach new highs, gas prices will likely rise even higher.

Also supporting oil prices Wednesday was Royal Dutch Shell PLC's decision to extend force majeure on some Nigerian oil shipments, a legal declaration that means the company can't meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.

Comments

[shelobo]

JUNE 5TH 2008 :From the DOE website :DOE to Defer Strategic Petroleum Reserve RIK Deliveries
2.1 Million Barrels Delayed Until Spring 2009
WASHINGTON, DC – The U. S. Department of Energy today announced it will defer approximately 2.1 million barrels of royalty-in-kind (RIK) exchange crude oil that had been scheduled for delivery to the nation’s Strategic Petroleum Reserve sites (SPR) this summer.

The deferred deliveries are part of a royalty-in-kind crude oil exchange that began in January 2008 and were to total approximately 11 million barrels delivered to the SPR through July 2008. The approximately 2.1 million barrels will be deferred for delivery until March-May 2009, after the winter heating season. Deliveries of approximately 2.8 million barrels were not deferred and will continue through July 2008. Shipment of these barrels was already underway and could not be practicably deferred.W­HY was the Oil delayed just in recent months? http://www.doe.gov/news/6315.htm

[Robert59]

Inventories declining as the price goes up. The oil industry will conclude that means the market will support further price increases.

Interesting how we read about everyday Americans curtailing their driving. Ditto for the trucking industry. So who is using that oil? Would be interesting to know if inventories are someone is cooking the books on what they claim they are delivering.

[joebhed]

I probably got it wrong, but I didn't read it that way.
It seems there would be two ways for inventories to decline.
More coming out.
Less going in.
(or both)
Given that we are using less, it would seem the inventories would be going up.
All other things being equal.

Who controls how much oil goes into "inventories"?
Is it the people who control the physical oil?
Is it the people who control the next futures contract?
Is it the people who control the next futures contract?
Are they the same people?
As the oil companies?

Was there some reason why the US deregulated the oil and energy trading markets?
Like, this?

[shelobo]

The question should be ,WHY was delivery of 2.1 million barrels of royalty-in-kind (RIK) exchange crude oil that had been scheduled for delivery to the nation’s Strategic Petroleum Reserve sites (SPR) for this summer, delayed untill spring of 2009 AFTER the election?Congress should be finding out WHY this is happening and WHO is behind it,did Bush make the decision in order for Oil to sky rocket and our economy fail OR to make Americans think we are running out of oil so that people could be hoodwinked into allowing offshore drilling? Read the intire article at the DOE's website http://www.doe.gov/news/6315.htm.htm

[Rule Of Law]

"The department's Energy Information Administration said oil inventories fell more than expected last week, and that gave oil a kick upward."

Gosh, imagine that. And I remember just yesterday one of our peak oil conspiracy theorists saying that inventories had nothing to do with the barrel price...oh­, well. In baseball we'd call that (at least) strike two!

[joebhed]

Rule,
I don't agree on this.
As you can see from my other comment.

There is no RULE of law, regulation or morality that says that ANYONE who controls any quantity of oil either must place that oil from transportation or distribution into "inventory", or to report the "real" amount of oil in inventory.
There are many ways to sway the actions of the market's invisible hand.
Speculation and manipulation are but a couple.
Keeping it on the tankers drives up the value of the cargo.
The oil-kings say there is no supply-demand disruption.
The US is using less oil for all purposes.
The EIA was already expecting the inventories to be reduced.
They were reduced more than they expected.
We are using less oil today in response to the price.
I know I am.
Something seems amiss.
Any excuse for another "kick" upward.
So, why were inventories reduced more than expected?
No comment from the Bushie DOE on that.
Respectfully submitted.

[Rule Of Law]

I wasn't referencing you, Joe. Someone had said that inventory, period, too much too little, never impacted price. That it was being determined SOLEY by the notion of peal oil now. Yet, as this article says, inventory has a huge effect on price. This person would even suggest that your examples, many of them right on, don't apply because there is no manipulation, this is just how the market reacts to the peak.

I agree with you: any excuse to tick the price upward, including hiding it, not pumping it, selling it on the black market so that it never plays a role in the pricing, etc. We are being gamed!!! I just happen to think that peak has nothing to do with it.

[TrevorAlan]

And the Bush Admin and its friends say our economy is doing great? That slipage of the dollar is perhaps scarrier than the rise in oil prices, because that signals a broader decline in our future economic viability regardless of energy prices.

[ibsteve2u]

Man...up $3, down $3...it is enough to make you wish you were a Goldman Sachs trader with an inside pipeline right into this Administration, isn't it?

[Rule Of Law]

They do--Henry Paulson at Treasury is ex-CEO of Goldman!