Tuesday, March 23, 2010

Multiple reasons behind the oil price rise

Multiple reasons behind the oil price rise


The reasons for the oil price rise:

While there are many reasons for the increase, some significant ones are:

According to the U.S. Energy department, refinery utilization in the U.S. rose to 81.9%, an increase by 0.7% for the week ending February 26. The refinery operating rates were the highest since October. For its part, the high refinery cost has compensated for any possible decrease in the price of oil. In addition, the US fuel demand was at 19.3 million barrels for the last four weeks an increase of 3% from last year-according to the department. Amid this, there were reports of rebel groups attacking oil installations in Nigeria. As Nigeria is Africa's largest oil producer, investors feared for the oil exports from the region. The reports of the attacks are yet to be confirmed, but, still, helped increase the oil prices. U.S. jobs report showed lower than expected unemployment figures. The report from the Bureau of Labor Statistics department showed unemployment rate unchanged from the January rate of 9.7%. Investors took this as a sign of economic revival with the U.S. President Obama describing the jobs report as "better than expected". As soon as the Labor department came up with the news, dollar fell increasing the oil prices. And how did that happen?

  • Higher oil price increases the export bill leading to trade deficits and weak dollar
  • Dollar-denominated commodities become cheaper with a weak dollar, in turn increasing the price of oil.
Moving on, there were optimistic signs on the manufacturing font in the U.S. The U.S. Commerce department announced that factory orders rose 1.7% in January mainly due to increased aircraft orders. There was 2.6% increase in durable goods orders. Confidence of the businesses showed as the Inventories continued to increase.
In addition, there emerged positive signs from the world's second biggest oil consumer, China. Last Friday, the Chinese premier Wen Jiabao set an economic target of eight percent for this year. Fair enough since a good economy means better fuel demand.

Other reasons

  • Heating oil demand from the Northern hemisphere
  • Signs from the Middle-East: Seizure of a Saudi Arabian oil tanker by pirates in the Gulf of Aden too worried the investors. As did the Iraqi parliamentary election due March 7.
  • Greece's austerity measures to rein in the debt problem

This article was written by Oil-Price.net which provides free information on crude oil.

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