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Oil Prices Rise On Lower Than Expected Supplies

August 10, 2011

by Jerry Robinson | FTMDaily Editor-in-Chief

AUSTIN, August 10

Crude oil prices rose on Wednesday after a government report showed that U.S. oil inventories shrank more than expected last week.

The Energy Information Administration reported on Wednesday that U.S. crude oil supplies fell last week by 5.2 million barrels. Energy analysts had estimated that oil supplies would increase by almost 2 million barrels. The supply decrease came as refineries used more crude than expected.

Oil prices reacted quickly to the EIA data by moving higher throughout the day, despite another dramatic drop in equity prices. West Texas Intermediate crude rose $3.59, or 4.5% to close at $82.89 a barrel on the New York Mercantile Exchange. Brent crude rose 4%, to settle at $106.68 per barrel on the ICE Futures exchange in London.

Also, another potential price driver was the Fed's announcement this week to keep short-term interest rate targets near zero through 2013. Commodity speculation abounds in our current low interest rate environment and now should continue given the Fed's decision. This bodes well for many commodities including oil, agricultural commodities, and precious metals.

We expect that oil prices will continue to climb on increasing global demand in the future. We expect most of this increasing demand to come from areas outside of the U.S. and Europe, like China. In fact, a new report issued by Barclays Capital confirmed our assessment. The report shows that China's oil demand rose by 7.4% in July from a year ago. 

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