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Oil jumps over $1 as crude supplies drop
Wednesday October 31, 1:22 pm ET
By Steve Hargreaves, CNNMoney.com staff writer
Oil prices jumped more than $3 a barrel Wednesday, hitting another record high, after a report showed a big drop in crude supplies and traders awaited an expected interest rate cut that could push prices even higher.
U.S. light crude for December delivery rose $3.04 to $93.42 a barrel on the New York Mercantile Exchange. Prices rose as high as $94 after the inventory report, topping crude's all-time record trading high of $93.80 a barrel set Monday.
In its weekly inventory report, the Energy Information Administration said crude stocks fell by 3.9 million barrels last week. Analysts were looking for a gain of 100,000 barrels, according to a Dow Jones poll.
The drop in crude stocks came at the same time that refiners scaled back operations, running at just over 86 percent capacity.
Distillates, used to make heating oil and diesel fuel, rose by 800,000 barrels, while gasoline supplies increased by 1.3 million barrels. Analysts were looking for a 1 million barrel drop in distillate supplies and a 400,000 barrel gain in gasoline stockpiles.
One trader said he was surprised the distillate number actually rose, but said one cold snap could send distillate, and hence heating fuel prices, soaring.
"Refining capacity numbers are very low," Ray Carbone, a broker and trader at Paramount Options, said from the NYMEX floor. "The potential for an explosion is there."
Oil prices turned higher earlier Wednesday after a report said the U.S. economy grew by a robust 3.9 percent rate in the third quarter, which was more than expected.
The report could influence a decision on interest rates from the Federal Reserve, expected at 2:15 p.m. ET.
The Fed had been expected to cut rates in an effort to prop up the economy, but analysts now say the chances of a cut are maybe 50-50.
A cut from the Fed would most likely send prices higher, as it would promote stronger economic growth and hence demand for crude. But a rate cut had been at least partially priced into crude, so prices could sell off swiftly if the Fed leaves rates unchanged.
Carbone said traders have mostly priced in a quarter point cut already, and added that a half point cut "would really, really move markets."
Oil prices sold off by more than $3 a barrel Tuesday after a report from influential trading house Goldman Sachs urged investors to sell oil now in order to lock in profits.
But crude is still near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to $93 to $101 a barrel, depending on the inflation calculation used and the oil contract cited.
Crude prices have spiked over 15 percent in the last three weeks, an oddity for the time of year knows as a "shoulder season" - a time of slack demand between the summer driving and winter heating months.
Fighting between Turkey and the Kurds in oil-rich northern Iraq, reports showing demand outpacing supply in the fourth quarter, a falling dollar and speculative investing have all been cited as reasons for the runup.
Crude oil prices have more than quadrupled since 2002. Analysts say surging global demand combined with limited new supply is the main underlying factor.
The surge in prices has also attracted lots of speculative investment money, further driving prices higher.
And the tight supply and demand situation magnifies the effect that geopolitical tensions have on prices, as there is less spare supply available globally to cover disruptions from places like Iran, Nigeria or Venezuela.
The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars.
Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.
Wednesday October 31, 1:22 pm ET
By Steve Hargreaves, CNNMoney.com staff writer
Oil prices jumped more than $3 a barrel Wednesday, hitting another record high, after a report showed a big drop in crude supplies and traders awaited an expected interest rate cut that could push prices even higher.
U.S. light crude for December delivery rose $3.04 to $93.42 a barrel on the New York Mercantile Exchange. Prices rose as high as $94 after the inventory report, topping crude's all-time record trading high of $93.80 a barrel set Monday.
In its weekly inventory report, the Energy Information Administration said crude stocks fell by 3.9 million barrels last week. Analysts were looking for a gain of 100,000 barrels, according to a Dow Jones poll.
The drop in crude stocks came at the same time that refiners scaled back operations, running at just over 86 percent capacity.
Distillates, used to make heating oil and diesel fuel, rose by 800,000 barrels, while gasoline supplies increased by 1.3 million barrels. Analysts were looking for a 1 million barrel drop in distillate supplies and a 400,000 barrel gain in gasoline stockpiles.
One trader said he was surprised the distillate number actually rose, but said one cold snap could send distillate, and hence heating fuel prices, soaring.
"Refining capacity numbers are very low," Ray Carbone, a broker and trader at Paramount Options, said from the NYMEX floor. "The potential for an explosion is there."
Oil prices turned higher earlier Wednesday after a report said the U.S. economy grew by a robust 3.9 percent rate in the third quarter, which was more than expected.
The report could influence a decision on interest rates from the Federal Reserve, expected at 2:15 p.m. ET.
The Fed had been expected to cut rates in an effort to prop up the economy, but analysts now say the chances of a cut are maybe 50-50.
A cut from the Fed would most likely send prices higher, as it would promote stronger economic growth and hence demand for crude. But a rate cut had been at least partially priced into crude, so prices could sell off swiftly if the Fed leaves rates unchanged.
Carbone said traders have mostly priced in a quarter point cut already, and added that a half point cut "would really, really move markets."
Oil prices sold off by more than $3 a barrel Tuesday after a report from influential trading house Goldman Sachs urged investors to sell oil now in order to lock in profits.
But crude is still near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to $93 to $101 a barrel, depending on the inflation calculation used and the oil contract cited.
Crude prices have spiked over 15 percent in the last three weeks, an oddity for the time of year knows as a "shoulder season" - a time of slack demand between the summer driving and winter heating months.
Fighting between Turkey and the Kurds in oil-rich northern Iraq, reports showing demand outpacing supply in the fourth quarter, a falling dollar and speculative investing have all been cited as reasons for the runup.
Crude oil prices have more than quadrupled since 2002. Analysts say surging global demand combined with limited new supply is the main underlying factor.
The surge in prices has also attracted lots of speculative investment money, further driving prices higher.
And the tight supply and demand situation magnifies the effect that geopolitical tensions have on prices, as there is less spare supply available globally to cover disruptions from places like Iran, Nigeria or Venezuela.
The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars.
Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.
