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Oil prices rise as inventories fall

Oil prices rise as inventories fall

For one day at least, the price of both oil and natural gas was dictated by the law of supply and demand.
The Energy Department said Wednesday commercial crude oil inventories fell by 3.3 million barrels to 364.9 million barrels for the week ending Nov. 5. Natural gas inventories held in underground storage in the lower 48 states increased by 19 billion cubic feet to 3.840 trillion cubic feet for the week ended Nov. 5.
The report sent benchmark oil for December delivery up $1.18 to $87.90 a barrel on the New York Mercantile Exchange. Natural gas prices, meanwhile, fell 16.6 cents, about 4 percent, to $4.044 per 1,000 cubic feet.
The amount of oil in storage remains above the average for this time of year, yet the price is now at its highest level since October 2008, when the global financial crisis was taking hold. Oil prices have risen about 10.6 percent this year, while crude supplies have increased by 11.5 percent.
Natural gas prices had been dropping as supplies increased, though recently they've risen as the winter heating season approaches. Gas is used to heat more than 60 percent of the U.S. homes and supplies usually drop as usage increases in the colder months.
The different reaction to the surpluses can be traced to oil's value as an international commodity. Its price is now more heavily influenced by economic growth and the value of the dollar. Natural gas prices, on the other hand, are closely tied to domestic economic growth because the fuel is used by power plants and, increasingly, transportation.
The government also said gasoline inventories declined by 1.9 million barrels to 210.3 million barrels while demand over the past four weeks was up slightly, averaging 9.1 million barrels a day. That's an increase of 1.8 percent from the year-ago period.
In addition, inventories of distillate fuel, which include diesel and heating oil, fell by 5 million barrels, or 3 percent, to 159.9 million barrels.
Oil prices have climbed steadily in recent weeks because the dollar has weakened against other currencies. That's largely because of the Federal Reserve's decision to pour billions of dollars into a bond-buying program to stimulate the U.S. economy.
Since oil is priced in dollars, a weaker dollar makes it more of a bargain for buyers using euros or other currencies. Energy traders expect this to happen, so they buy oil when the dollar falls, boosting the effect.
Yet, oil was higher Wednesday even though the dollar was stronger as traders concluded the inventory decline was a sign of an improving economy.
"The trend in crude supplies has been down now for more than a couple of months," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "That's beginning to give us a glimmer that the economy is on the rebound."
In other Nymex trading in December contracts, heating oil added 3.73 cents to $2.4440 a gallon and gasoline gained 4.55 cents to $2.2305 a gallon.
In London, Brent crude added 44 cents to $88.77 a barrel on the ICE Futures exchange.