On Wednesday, U.S. oil
prices surged above $106 a barrel in trading amid concerns of dwindling stockpiles
and continued unrest in Egypt. Gasoline prices in the United States also began
to move higher and averaged over $3.50 per gallon.
Oil prices jumped by nearly
$3 a barrel following reports of a draw down in oil reserves around the
country. The American Petroleum Institute showing a 9 million barrel draw down
in crude oil and report from the U.S. Energy Information Administration showed
a similar draw.
The draw down in crude oil
supplies is generally the result of refiners getting better at avoiding
stockpiles of crude. For example, a recent upgrade to a BP plant in Indiana allows
it to increase production by 250,000 barrels per day.
The surplus of crude was
caused by the recent boom in U.S. oil production from
places like North Dakota's Bakken Shale and Texas' Eagle Ford. The oil was
being pumped, but there was no transportation infrastructure in place to get it
to market. Oil piled up in places like Cushing, OK, which is a convergence point
of several pipeline and oil storage tanks. It is also the delivery point for
the most widely cited U.S. oil contract -- West Texas Intermediate. Because of
the backlog, WTI prices over the last couple of years were about 20% below
other oil contracts traded both in the United States and globally. WTI prices
are now nearly on par with Brent Sea Crude prices, a more normal scenario.
The price jump comes on top
of the 10 percent rise since the end of June spurred by the military takeover
in Egypt. Growing concerns about the continued unrest in Egypt are making
traders nervous. Although Egypt does not produce much oil, it controls the Suez
Canal which moves 4 million barrels of oil a day. Traders have expressed
concerns that the unrest in Egypt could spread to other oil-producing countries
thus
The rise in crude prices is
beginning to affect gasoline prices as well. After recent drops in average
prices over several weeks, the price jumped 2 cents per gallon overnight to
$3.50. Fortunately for consumers, the rise in gas prices may not move as fast
as oil prices. The BP plant in Indiana is producing gasoline, so national supplies
should remain plentiful and keep prices in check somewhat. Additionally, economic
data from China may prove to help ease oil prices given that there is little
positive news that would tend to support the oil prices at this level.