Only a week ago, crude oil seemed poised to move lower. At that time, hedge fund liquidation and rising U.S. production were driving the price action. This week is a different story. The facts about rising U.S. output remain the same, but it appears that sentiment is driving the price action at this time. Therefore, we have to conclude that prices will remain elevated until the speculators stop buying.
This week, U.S. West Texas Intermediate and international-benchmark Brent crude oil moved to their highest levels since February 1 after the government reported a surprise decline in U.S. inventories. Other catalysts behind the rally were Middle East tensions and worries about Venezuela’s production slide.
According to the U.S. Energy Information Administration (EIA), crude oil inventories declined 2.6 million barrels the week-ending March 16. Analysts were looking for a 2.5 million barrel build.
The EIA also reported a 1.7-million-barrel drop in gasoline inventories. Gasoline production averaged 9.9 million barrels in the week to March 16, with refineries operating at 91.7 percent of capacity and processing 16.8 million barrels of crude daily.
Additionally, crude imports dropped by half a million barrels per day, that contributed to the draw. Exports were up slightly.
Speculation that the United States may reimpose sanctions on Iran also helped boost prices because this would lead to a disruption of supply.
While it may be true that…