Crude Bubbles Up

Each week the Energy Information Administration (EIA) provides us with a report showing how much oil sits in storage tanks around the country. When the US and global economies were speeding ahead, strong demand for crude, especially out of China, and OPEC's seemingly inability to keep up with demand sent prices soaring and limited the buildup of supplies. Of course, I think it's clear now that speculators also played a role in last year's run-up in prices.

But today's global environment is a far cry from what we saw 12-18 months ago, and demand for the key commodity that keeps the world's economic engine from breaking down has withered and US supplies have surged. And this week is no exception as inventories jumped almost 4 million barrels to the highest level in nearly 20 years.


Source: EIA - This Week in Petroleum

What's bad for producers has been good for consumers. We are awash in oil, and prices have plunged from a high of over $145 per barrel last year to under $50 per barrel today. OPEC has tried to keep up by reducing output, but sliding demand has been more than enough to offset cutbacks.

Plus, diminishing demand for gasoline has caused refineries to slash output, which has also accounted for the rise in raw supplies, and for now, has helped to put a floor under gasoline prices - note that the price at the pump has crept off December's low.


Source: EIA - This Week in Petroleum

One last point, crude prices have rallied modestly on hopes that the global contraction is nearing an end. Still, all of the oil that is sloshing around the US and the world could become an overhang on prices if economic data keep telegraphing further weakness.