Oil prices rebounded to another record high Wednesday afternoon March 12, 2008 after initially plummeting when the US government report said supplies of crude and gasoline had risen much more than expected.In afternoon trading, U.S. light crude for April delivery surged to a high of $110.20 before closing at $109.92. Oil had traded as low as at $107.09 following the report's release on Wednesday morning.
In its weekly inventory report, the U.S. Energy Information Administration, a government agency that measures oil and gas supplies, said crude stocks rose by 6.2 million barrels last week. Analysts were looking for a rise of 1.6 million barrels, according to a Dow Jones poll.Gasoline supplies rose by 1.7 million barrels, significantly more than the 300,000 barrel rise that analysts had forecast. The government said gasoline stockpiles are well above average for this time of year.
Since September, gasoline stockpiles have increased from a 16 million barrel deficit to a 22 million barrel surplus, which Schork believes is due primarily to the continuing low demand for gasoline.Rising prices in spite of supply and demand. Typically, an increase in supply and low demand would result in much lower crude prices. But crude and gas prices continue to rise."This is all driven by speculation," said Schork, who believes that investors have poured money into the commodity to make some interest in a slumping economy. "That's why we've seen a jump from 20,000 to 90,000 contracts this month."About an hour after the government report's release, oil rebounded to around the level of Tuesday's settle as investors continued to pour money into commodities.
"This market is not about supply and demand, it's about the dollar," said Alaron senior analyst Phil Flynn. "The dollar is weaker and investors are buying anything they can get their hands on."Gas demand much lower. Still, oil's rebound is somewhat surprising given continued low demand for gasoline. Gas demand held steady last week, still averaging 9.1 million barrels per day over the past month. Demand is 0.4% higher than the same period last year.The EIA revised its U.S. oil and gasoline demand forecasts downward Tuesday, citing a slow economy and high oil prices. The government agency now expects oil demand in the United States to grow just 40,000 barrels a day, or 0.2%, in 2008, down from 0.5% or 100,000 barrels a day in its previous forecast.Since 2001, oil demand has grown an average of 0.9% annually or 175,000 barrels a day. In 2007, oil demand was statistically flat, growing only 10,000 barrels a day.Gasoline demand has grown an average of 1% annually over the past six years, but this year's demand for gas is expected to increase only 0.3% from last year, down from last year's annual growth of 0.4%.But vapid demand hasn't caused gas prices to come down at all. The average price of regular gasoline rose overnight to $3.246 a gallon, according to motorist group AAA, setting a record high."Motorists who rely on their automobiles... are understandably upset," said AAA President & Chief Executive Robert L. Darbelne in a statement."Every extra dollar needed to fill up the car is a dollar not available for groceries, housing, education, vacations, paying off debt, and other key aspects of American families' lives," added Darbelne, who called on Washington to develop a long-term energy solution, as high fuel prices have dragged down consumer spending in an already struggling U.S. economy.Though gasoline is selling at its highest price in history, gas prices are still below their peak when adjusted for inflation, according to the EIA. The record on that basis was $3.405 and set in March 1981.The government report also showed distillates, used to make heating oil and diesel fuel, fell by 1.2 million barrels, which was slightly less than the 2 million barrel drop analysts had expected.And refinery usage was a bit lower than the previous week, operating at 85% capacity last week, falling slightly short of estimates. Refineries tend to lower their capacity in March, as they retool to produce summer fuels.After oil prices settled above $100 a barrel for the first time on Feb. 26, they have set record intraday highs in 11 of the last 12 trading sessions, including today's record high. Oil has not traded below $100 a barrel since March 5.Oil prices have risen more than five-fold since 2002 and about 10% already in 2008. Most analysts blame rising demand and tight supply. That has also attracted floods of investment money, and exaggerated the effects of supply disruptions.