U.S. crude oil and gasoline stockpiles fell sharply last week, according to a U.S. Energy Information Administration report, with crude down 2.1 million barrels and gasoline off 4.3 million barrels.

“Week over week, the report is very bullish,” said Phil Flynn of Alaron trading in Chicago.

“There are still questions over the economy, whether these prices can be sustained, which is why we will probably return to the stock market to see if there are any signs of economic help.”

Stock market strength has supported crude prices in recent months, helping lift them from lows below $34 a barrel on optimism any rebound in the economy could spur fuel demand. The Dow industrials briefly turned negative on Wednesday as bank stocks extended losses, while the S&P 500 and Nasdaq trimmed gains.

Weak demand has sent crude prices off record highs over $147 a barrel struck last July.

Fire struck gasoline-making units at two U.S. refineries this week, triggering a roughly 8 percent spike in U.S. gasoline futures on Tuesday as the United States gears up for the Memorial Day holiday on Monday, traditionally the start of summer driving season.

Data from Japan showed gasoline inventories at their lowest level since September 2007 and kerosene stocks declining to a near three-year low in part due to strong sales.

Further strength has come from unrest in OPEC member Nigeria, Africa’s top oil and gas exporter. Shooting broke out in the Nigerian oil port city of Warri on Wednesday following days of military helicopter and gunboat raids on militant camps in the surrounding creeks.

Top Italian oil and gas company ENI SpA declared force majeure for its Brass River export terminal in Nigeria, adding its output affected so far was 9,000 barrels per day.

The Algerian oil minister said the Organization of the Petroleum Exporting Countries (OPEC), which has agreed to cut 4.2 million bpd of output since September to prop up prices, has no reason to cut output again when it next meets on May 28.

The International Energy Agency said the economic downturn is cutting investment in energy supply, raising the risk of higher prices in future that could hamper any recovery.

NEW YORK, May 20 (Reuters)

Crude has hit a new all-time high of $112.21… corn rose to a record $6.16… and gasoline prices across the US hit another all time high.

In Virginia, the pump price of gasoline averaged $3.29 per gallon. The Americans might not like the rising price of gas, but frankly that’s tough: I do. It’s going to make us money.

I welcome high gasoline prices and their impact on crude price and reckon this trend has just started. Indeed, many analysts have been forecasting gas will hit $4 this summer for a while now: but the first prediction of $5 diesel hit the wires overnight too.

It wasn’t the fall in US gasoline stockpiles that was a surprise (especially not to us), it was the crude inventory figures that provided the real shock… but both were bullish for oil.

US crude oil stockpiles decreased by 3.148m barrels in the week ending 4 April. The consensus estimate of analysts was for a 2.5m increase. Gasoline inventories were expected to decline by 2.5m barrels but plunged by 3.442m. Distillate inventories declined 3.693m against expectations for a 1.5m slide.

All this is good news for the oil price because of the 3-2-1 rule… $120 a barrel here we come.

Continues below…

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Gold prices are likely to soar above $1,100 an ounce this year, after bottoming out in the high $800s, according to metals consultancy GFMS.

The group, which provides data to the World Gold Council, said that the factors supporting prices over the last few months would remain in place and investors would continue to look at bullion for strong returns.

It argued that “current knowns” could translate into prices pushing up over $1,100, but perhaps a few “future unknowns” might be required for levels over $1,200 or more.

Jeez, they sound like Donald Rumsfeld.

However, I fully concur with what GFMS are saying, which is something I have never really been able to say about the US’s 21st Secretary of Defense.

Regards,

Garry White

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