Up from the ground came a bubbling crude--oil, that is...

Jed Clampett would like this. Crude oil is bubbling again. Inflated by low interest rates and an aggressively stimulative Fed, the price of crude oil has mushroomed 45 percent higher since the end of February despite the fact that demand is down and inventories are up.

You've probably seen it at your local gas station and felt it in your pocket book. At my local gas station, the per gallon price of unleaded gasoline has risen from around $2.00 gallon to $2.69 since early March. The rise in gasoline prices is even more astounding compared to what I paid for unleaded gasoline during a trip to Utah last December--$1.09 per gallon!

An article by Ben Casselman in today's Wall Street Journal gives the gory details.

  • U.S. gasoline consumption is lower than a year ago even though prices at the pump have dropped by $1.50 per gallon versus year ago levels.
  • The International Energy Agency's latest forecast says world-wide consumption of oil will fall 3% this year, putting demand at its weakest level in over twenty years.
  • U.S. crude oil inventories are 16.5 percent higher than last year.
  • Oil imports are down 6.6%.
  • At the end of March, developed countries had 62 days worth of oil in storage, 14.7% higher than a year earlier.

None of these factors warrants a dramatic rise in oil prices. To what does the Wall Street Journal's Ben Cassleman attribute this rise? 

The rally reflects a range of factors: a weakening dollar, fears of inflation and increased appetite for risk among investors. But the driving force appears to be the first glimmersof economic recovery. Confident that an economic rebound wil yield stronger demand for oil, investors are rushing to get ahead of another surge in crude prices.

Now, I don't know much about Ben Casselman's credentials and I am no expert on the global oil markets, but it looks to me like another oil bubble is brewing. Won't we ever learn?