Over the past couple of weeks I have been saying that we would be seeing $70 oil by the end of the month and today we have seen just that. After breaking through the psychological $70 barrier to hit a high on the day of $70.09, prices since have retreated slightly to $69.97 The main reason behind this push above the $70 mark is yesterday's oil inventory report from the Energy Department that showed a drop in gasoline inventories. Gasoline levels have been the center of attention lately since American refineries have been unable to keep production capacity stable above 90% as we head into the peak summer driving months.
Last week we were treated to a massive increase in gasoline supplies, but this week the numbers turned against us once again. Analysts had been expecting to see supplies increase, but what we saw was a decline of 700,000 barrels (analysts had been hoping to see a 1.1 million barrel increase).
U.S. refineries were able to increase their output, but still have not been able to rise above the 90% level that most experts say is the point where they really need to be in order to keep up with the rising summer demand. Last week, the Energy Department reported that U.S. refineries were operating at 89.4%.
With the market already concerned about gasoline inventories, this week's drop was enough to bring out the bulls and push prices up above $70 a barrel. For now, it looks like prices still have a ways to go before they peak out this summer. I have been saying that I would not be surprised to see prices in the mid $70s by the middle of next month, and given the current market conditions I still think this might be the case. Will we see prices all the way back up to $80 where they peaked out last summer? A lot of that is going to depend on just how well American refineries are able to pick up the pace.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
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