ENERGY & ENVIRONMENT

Signs of Higher Oil and Gas Prices as Stockpiles Dwindle

By CLIFFORD KRAUSSMAY 6, 2015

Pump jacks in California. Crude oil stockpiles fell by nearly four million barrels last week, the first drop since December. CreditLucy Nicholson/Reuters

HOUSTON — Oil and gasoline prices have been on a ferocious rebound over the last month, and there were signs on Wednesday that declining domestic inventories could mean still higher prices as the summer driving season approaches.

The Energy Department reported on Wednesday that United States crude oil stockpiles fell last week for the first time since December, down by nearly four million barrels.

Several factors point to a continuing rise in American crude prices, which collapsed by roughly half between July and early January. These include rising refinery processing rates, declining imports and a flattening of domestic crude production as companies decommission more drilling rigs.

Oil prices were volatile for the day, and the American West Texas Intermediate benchmark rose 32 cents a barrel to finish the trading day at $60.72 a barrel. The price, which rose above $60 for the first time this year earlier in the week, has risen by roughly 40 percent since late March.

The international Brent benchmark has nearly revived to $70 a barrel, although that is still more than 30 percent below its high of last summer.

Gasoline prices are rising along with those of oil. The national average for a gallon of regular gasoline on Wednesday was $2.63, according to the AAA auto club, a full penny more than the day before. The average price is up nearly 25 cents a gallon over the last month, but still remains $1.04 lower per gallon than a year ago.

The steady rise in fuel prices buoyed the spirits of energy company executives, who cut investments in exploration and production by as much as 30 percent this year. Talk began to surface around the oil shale fields of Texas and North Dakota of bringing rigs idled over the last six months back on as profit margins improved.

“We think we are going through a natural cycle,” said Lorenzo Simonelli, president and chief executive of GE Oil and Gas. “There should be an upward trend. With lower investments, over the next six months, supplies are going to be impacted. Demand continues to increase, and you’ll see a price that starts to drift upward.”

The government said the country was still producing nearly 9.4 million barrels a day, just a bit off multidecade highs. Commercial crude and refined product inventories remained well above normal.

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Some energy experts warned that the Energy Department might be underestimating American oil production and that the price of oil could dip again. They said that companies had drilled hundreds of wells but were waiting for higher prices before completing them for production.

In a note to investors on Wednesday, Citi Research warned that “higher prices could presage a production surge later this year as uncompleted wells are worked down and rig counts rise. Inventories could stay stubbornly high over the year, and refinery maintenance in the fall could drive large stock builds on an already high base.”

A major reason for the slide in inventories was a weekly drop of nearly a million barrels a day in imports at a time when the trade balance had otherwise been deteriorating.

Another reason oil prices have risen is a return of risk to supplies abroad. With chaos spreading across Libya, protesters in recent days have closed one of the few major export ports that had still been open. Energy experts say up to a half million barrels of daily world supplies of crude are at risk in Libya. Continuing turmoil in Yemen also puts in potential jeopardy vital sea lanes for oil shipments.