For the first time in a year, the U.S. economy grew. According to the Commerce Department, GDP expanded at a rate of 3.5%. The data records a massive turnaround from the 3.8% loss the country has experienced over the past year, which was the worst economic performance the U.S. has had in 70 years…
This growth marks the end of the recession, and spells higher demand for oil and oil products.
On this news, crude oil prices have jumped more than $2 today, breaking the $80 a barrel level yet again.
“The price depends very much on the economy of the U.S., which is the world’s biggest oil user. It’s pretty obvious really,” said David Jenkins, a director at oil inter-dealer broking company Tradition, as reported by CNNMoney.
Interestingly, the Energy Information Administration reported a jump in crude oil inventories last week of 800,000 barrels. Gasoline inventories jumped by nearly 1.7 million barrels, too.
The results were released yesterday at 1 p.m., and on the news, crude oil prices fell significantly.
Bloomberg reports, “Oil fell the most in a month yesterday after the Energy Department said that U.S. gasoline stockpiles climbed by 1.62 million barrels, more than estimated.”
In fact, crude oil futures prices fell 2.6% yesterday, the biggest drop in a month. Oil futures dropped as low as $77.06.
But that drop has been reversed with the GDP growth announcement. In order to sustain upward price movement above $80 a barrel, demand will have to increase.
As a whole, though, crude oil prices have climbed 78% this year, which has certainly helped some oil companies. But as crude oil companies are comparing earnings to the third quarter of last year, when oil prices were at record highs, the numbers show drops in profits for some.
Melinda Peer of Forbes writes, “The third-quarter looks like a messy one for large integrated oil companies since crude prices had climbed to an average $115 a barrel a year ago and gasoline prices supported favorable refining margins. That makes for some tough comparables to 2009’s third quarter...”
But with slugging demand, some types of oil companies are going to do better than others, such as oil producers versus oil refiners.
William Patalon III, executive editor of Money Morning, writes, “Supply concerns recently pushed oil futures up above $81 a barrel, their highest level in more than a year.”
Patalon interviewed Dr. Kent Moors, one of the world’s foremost experts on oil, energy policy, finance, risk management and new technologies. Dr. Moor said, “If you think the run up to July 2008 was a wild ride, you haven’t seen anything yet.”
What should investors be on the lookout for?
Dr. Moor suggests, “In the next five years, investors who focus on medium- to small-sized producers and oil-field-service companies having a well-developed specialty niche will outperform the overall energy sector.”
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