Inventory Increase Sees Oil Prices Soar

New data on the level of crude supplies was released by the Energy Information Administration today and helped oil prices cruise to their highest level of 2010, before a quick pullback later in the trading session.

The price of a barrel of crude for April delivery reached as high as $83.03 early Wednesday morning as speculators applauded the new data that showed a 1.4 million barrel increase in crude last week for a 343 million barrel total inventory level.

Platts survey expected a report of 2.1 million barrels. The much lower than expected level of inventory triggered an immediate upward rise in trade, the lower than expected number was seen as a sign of increased demand.

Analysts pointed out that despite the lower than expected inventory number, crude oil levels are still high for the current oil price. Traders seemingly agreed as after the running up to $82, oil prices dropped back in the later morning of the session to close near Tuesday’s price of $81.50.

OPEC, an amalgamation of the world’s largest oil producing and exporting nations, says a stable global economy for the remainder of the year should see an increase in demand of over 900,000 barrels of crude oil per day.

OPEC would prefer that oil prices remain at current levels, or go even higher. However, real data continues to suggest modest demand in oil-based products in the US. Business and consumers are still hesitant to begin traveling and transporting at pre-recession levels. Without significant gains in US oil demand, it is hard to imagine OPEC’s forecast would hold true.

Several leading analysts have continued to call current price levels, which are 17 per cent greater over the last month, too high based on simple supply and demand economics. Inventory levels continue to remain near historic highs and OPEC has not opted to intervene greatly by significantly cutting its production to synthetically drive oil prices higher.

Still a major catalyst for the firmness in oil prices seems to be its strong correlation with US stocks and the general feeling of economic recovery. Investors are bullishly confident that at some point, an improved economy will generate more oil consumption by businesses and consumers.

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