The market bounced back from steep lows last Friday, putting crude oil prices back on track up to the $100 a barrel mark . Crude oil managed a strong rebound even as the US dollar showed strength. June WTI traded as low as $95.99 and bounced back $3.50 to expire at the $99.49 a barrel level, gaining $1.05 a barrel. The $96 a barrel level was reached at one point as the US dollar rose with big money investors worried about the outlook for global growth and the financial health of countries in Europe. The crisis was abetted by the recent arrest and subsequent resignation of Dominique Strauss-Kahn, the head of the International Monetary Fund.
The euro fell against the dollar as wariness about disagreements on how to tackle Greece’s debt and ahead of a Spanish regional election caused investors to cut back on the euro before the weekend.
The dollar, which often moves inversely to commodities because oil and other raw materials are priced in the US currency, rose around 0.6 per cent against a basket of currencies.
WTI crude oil futures for June, which were due to expire later on Friday, were trading around $96.40 per barrel, down $2.04 by 1400 GMT, after hitting an intra-day high of $99.60 with Brent crude oil for July dropping $2.12 to $109.30. Crude oil prices have declined 15 % from April 29 through May 20, 2011.
This week began with crude prices still battered and bruised from double-digit losses sustained the week prior. The following chart shows the trend between Brent and WTI crude oil prices from February 5 through May 16:
[Click to enlarge]
Meanwhile, gasoline prices at the pump remained at their lofty heights and oil companies are acting as if nothing is happening. Gasoline is a refined product of crude oil with retail gasoline, and crude oil prices tend to move in tandem in the up market.
Domestic crude oil inventories are at all-time highs and concerns of potential refinery disruptions in the Mississippi Delta region receded as fast as the drop in water level. Gasoline pump prices were temporarily buoyed even while crude oil prices kept going ever lower. The Mississippi Delta area is home to 11 oil refineries with a combined refining capacity of 2.461 million barrels of gasoline per day, which is 13.1 percent of total U.S. refining capacity. Weather-related disruptions caused by floods or hurricanes could have a serious impact for gasoline prices across the country.
Motorists should finally see the price of gasoline drop at the pump, barring any other unforeseen market-moving developments in the next several weeks. The relief will be felt just in time, as prices will ease heading into the Memorial Day travel weekend with the average price for gasoline in the US heading down towards the $3.50 per gallon mark.
It may be short-lived with the summer driving season and threats of hurricanes affecting the Gulf Coast refineries. Belly flopping into the sea of gasoline will make the water splash over the sides of the pool, but things get back to normal pretty quickly afterwards.