Inventory Increase Sees Oil Prices Soar

By Lee Mel

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 Oil price contract for April delivery reached $83.03 in early trading on Wednesday as traders showed delight in the new data. A 1.4 million barrel increase was reported in crude last week for a 343 million barrel total inventory level.

According to the Platts survey of analysts, the expectation had been for 2.1 million barrels. The much lower than anticipated level of inventory triggered an immediate upward reaction in trade as investors saw the lower than expected number as a sign of increased demand.

Many analysts quickly pointed out that despite the smaller than expected inventory, on the whole, crude levels are still extremely high for the current oil price point. Speculators apparently agreed as after the immediate run up to $82, oil prices pulled back in the later morning of New York trade to draw near Tuesday's settle price near $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 lanalysts are continuing to call the current oil price levels(which are 17 per cent greater over the last month) too high based on supply and demand. Inventory data continues to remain near historical highs and OPEC has decided not to intervene greatly by significantly cutting production to drive oil prices higher.

Still a major catalyst for the current firmness in oil prices appears to be its correlation with US stocks and the general sentiment of economic recovery in progress. Investors appear confident that at some point, the improved economy will shine through and generate more oil consumption by business and consumers. - 31869

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