Oil rocketed above $111 and wholesale unleaded gasoline soared to $2.81 -- an all-time high -- after a U.S. Energy Information Administration report indicated that weekly crude oil inventories unexpectedly fell 3.15 million barrels.
Analysts surveyed by Bloomberg News had expected crude oil inventories to increase by 2.5 million barrels in the past week.
The unexpected inventory decline sent oil up $2.71 to $111.21 per barrel in Wednesday morning trading. Oil hit an all-time high of $111.80 per barrel on March 17, 2008. The inventory draw also pushed wholesale unleaded gasoline to a record high -- up 5.8 cents to $2.8084 per gallon. Heating oil also surged 7 cents to $3.18 per gallon. Natural gas rose 40 cents to $10.09 per million BTUs.
Meanwhile, refineries operated at 83% of capacity last week, the EIA report indicated, up from 82.2% in the week ended March 21, 2008. Last year at this time, refineries operated at 88% of capacity.
Independent energy trader Jim Dietz told BloggingStocks Wednesday that the combination of an unexpected draw in oil inventories and the low refinery capacity utilization was too much for the oil bears to handle.
"The inventory report was a shocker. We've had building oil inventories for about the last three months on the slower U.S. economy so a three million barrel drop is a big surprise," Dietz said. "And as I've stated earlier, it doesn't take much to get this market in buy mode." Dietz added that he was stopped-out for a loss with a daily oil-short contract. He's presently flat.
Refinery capacity use
Dietz added that the unusually low refinery capacity utilization -- 83% -- also is bullish for gasoline prices and underscores the barely adequate nature of the U.S. refinery system. Historically, refinery capacity declines in the initial weeks of the spring, as refiners perform maintenance and convert systems to gasoline production from heating oil production.
"We haven't licensed a new refinery in the United States in more than 20 years and the next new one won't be ready for at least three more years. Even assuming production expansion at existing refineries, the U.S. doesn't have enough refinery capacity, something that comes into focus when spring maintenance is done," Dietz. "With supply limited, the only thing that can lower gasoline prices in the summer is lower consumption. Consumption has been down slightly, but it will have to drop more to have an effect on prices."
'Only game in town'
Dietz said another factor boosting oil prices is hedge and investment fund activity. Given volatile equity and bond markets, short-term-oriented hedge and investment funds have piled into oil and gasoline futures in search of return on equity.
"Right now, oil is a comparatively one-way calculation with modest downside," Dietz said. "It's the only game in town from a return on equity standpoint, which is keeping prices higher than they should be."
Before the bell: Futures higher ahead of housing, jobless data
Nuclear power is on the comeback trail
Apple backs AT&T in continuing spat with Verizon
