Crude Oil Reaches Two-Year High

Jane Van Ryan
Posted November 11, 2010

"Virtually anything can influence the price of crude oil." - API Chief Economist John Felmy

The price of crude oil ended the trading day yesterday at $87.81 a barrel, which was the highest level in the past 25 months. At the same time, the national average price of unleaded regular rose to $2.864, according to AAA.

Is this an attempt to take money out of motorists' pockets during the Thanksgiving Day holiday? No. It is the global marketplace responding to a variety of factors that have influenced the decisions of crude oil buyers and sellers.

In the past few days, several factors likely have had an impact on the market:

• The Federal Reserve Board announced plans to buy Treasury bonds to boost economic growth. As a result, the dollar declined in value against other currencies. Since crude oil is priced in dollars, traders viewed this as making crude cheaper in other currencies, which in turn made it an attractive investment.
• API and U.S. government data showed a drawdown of crude inventories last week. Analysts called the data "bullish" for energy investments.
• The International Energy Agency (IEA) projected this week that the demand for energy could surge by 36 percent over the next 25 years and raise the price of crude oil to $113 a barrel. By comparison, the price of crude oil averaged about $60 a barrel last year. (Financial Post)

As we've reported on this blog, the price of gasoline tends to track the cost of crude oil. Gasoline is refined from crude oil, and the cost of oil is the largest factor in the pump price of gasoline.

Furthermore, the pricing of crude oil and gasoline is exceedingly transparent. The crude oil price is published in newspapers every day. And service stations post their prices on huge signs on street corners and highways across America, which heightens competition and gives motorists the opportunity to make their own purchasing decisions.