Why Is Crude Oil Climbing ?

The price of crude oil rose above $97 a barrel yesterday for the first time in five weeks, boosted by gains in U.S. stock markets and more signs of a strengthening economy. The NYMEX will reopen on Monday while London will be shuttered for the longer holiday weekend. Economists said lingering economic problems in the eurozone continued to stoke investor concerns, with parties in Italy unable to form a government and Cyprus the latest nation to need a multi-billion-dollar bailout.

This week’s EIA inventory showed that U.S. crude oil stocks jumped 3.3 million barrels to 385.9 million barrels for the week ending March 22. That’s a 0.9% increase. While refinery inputs increased by 364,000 barrels per day (bpd), the main addition came from an 841,000-bpd spike in crude oil imports.

Although inventories had dropped 1.3 million barrels the previous week, this newest report keeps inventories “well above the upper limit of the average range for this time of year,” according to the EIA.

Drilling rigs actively exploring for oil and natural gas in the U.S. increased by two this week to 1,748, oilfield Services Company Baker Hughes Inc. said in a weekly report. The Houston-based company said 1,354 rigs were exploring for oil, up 30, and 389 sought gas, down 29. Five were listed as miscellaneous, up one. A year ago there were 1,979 rigs. The report was issued Thursday, a day early because of the Good Friday holiday. Oklahoma gained nine rigs, Colorado gained two and North Dakota and Pennsylvania each gained one. Texas was down four.

For the first time since 1995, the U.S. will likely produce more oil than it imports. That’s great for the country’s trade balance, but the benefits of all that cheap domestic crude still haven’t shown up at the one place it matters most: the gas station. Even as fuel consumption has fallen to 16 percent below its 2007 peak.

Simple economics suggest that higher supplies and lower demand should translate into cheaper prices. That presumes today’s petroleum markets are simple. Over the last year, the oil boom has upended the long-held belief that U.S. production would inexorably decline while America’s appetite for gasoline continued to rise, leaving the country hopelessly hooked on foreign crude. As the opposite has occurred, regulatory and transportation systems that grew out of those old assumptions have become increasingly outdated, preventing the forces of supply and demand from working efficiently.

Natural gas declined, a day after it closed above $4 for the first time since Sept. 14, 2011. Natural gas futures fell 4 cents to end at $4.02 per 1,000 cubic feet. Natural gas has risen 67 cents, or 20 percent, this year as colder weather and greater use of natural gas for power generation have helped whittle away at a large surplus of the fuel in the U.S. Gas gained as much as 1.3 percent after an Energy Information Administration report showed inventories dropped 95 billion cubic feet in the week ended March 22 to 1.781 trillion cubic feet. Gas has surged 21 percent this quarter as winter storms brought below-normal temperatures.