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Oil Prices Are Gushing Again

11 April 2014 in Trading Ideas

After hitting a multi-month low just after the new year, crude oil prices have spent most of the year on the upswing.

And some investors are betting they may stay that way for a while.

As Bloomberg News reported earlier this week, hedge funds and other money managers boosted their bullish wagers on oil prices by the most since February, believing that refineries will need to buy more crude to accelerate gasoline output before the peak US summer driving season.1

In case you hadn’t noticed, fuel supply is already tight, with consumers paying the most at the pump in seven months, Bloomberg said.


US refineries are processing the most oil since January as plants come out of seasonal maintenance, which has squeezed crude stockpiles for the first time in 11 weeks.

Earlier this week, the price of light crude jumped back above both its 50-day and 200-day average – and is only a couple dollars shy of its high for the year.

The recent rise also has found its way to lifting the stock of oil exploration and production companies. The Black Gold motif has gained 4.1% in the past month. In that same period, the S&P 500 is flat.

Over the past 12 months, the motif has gained 10.7%; the S&P 50 has risen 20.4%.

Beyond the near term dynamic of summer driving season, however, the rest of the year could see elevated oil prices because of good ol’ supply and demand.

The Wall Street Journal reported on Tuesday that crude futures hit a one-month high following news that government forecasters had lowered their estimate for domestic crude-oil production this year and next.2

US oil production has been robust, the Journal said, because of hydraulic fracturing and horizontal drilling techniques that have enabled energy producers to tap into supplies trapped in shale-oil fields. However, frigid winter this winter halted some production.

Meanwhile, just days earlier, another jump in oil prices was explained as a response by traders who were encouraged by the March jobs report, seeing that steady job growth could boost demand for petroleum products.3

And on Tuesday, the US Energy Information Administration did raise its 2014 consumption forecast slightly to 18.9 million barrels a day.

More to the point, the agency boosted its projection for 2014 prices, calling for the oil benchmark to average $95.60 a barrel this year, 27 cents more than what came from its March forecast.

Looking ahead, the Journal notes that as the economy continues to show strength, oil prices could continue to climb – even heading toward $120 a barrel this summer.

While that sort of pinch could bring some collateral economic damage, it may keep oil producers gushing.

1Moming Zhou, “Hedge Funds Buy Crude as US Gasoline Pump Prices Jump,” Bloomberg.com, April 7, 2014, http://www.bloomberg.com/news/2014-04-06/speculators-cut-bullish-oil-bets-by-most-in-nine-months.html.

2Nicole Friedman, “Oil Futures Vault on Lower Production Forecasts,” WSJ.com, April 8, 2014.

3John Kell, “Oil Futures Climb as US Employers Continue to Add Jobs,” WSJ.com, April 7, 2014.

Tags: Black Gold