By Todd M. Schoenberger, Managing Editor, Taipan Publishing’s Tipping Point Alert

As expected, the 12-member cartel known as the Organization of Petroleum Exporting Countries (OPEC) opted to keep its current production quotas in place following yesterday’s short six-hour meeting in Vienna. Crude oil prices rallied on the news and rose another 1.5% to close at a two-month high of $82.93 a barrel.

Traders at the New York Mercantile Exchange have been bidding up prices of crude oil with the expectation that global demand could increase as the economic recovery takes shape. With no changes in crude oil supply expected any time soon, prices per barrel should continue its ascent and chase the psychological $100 mark.

For now, however, OPEC seems to be quite pleased with oil prices north of $80 with no immediate plans to adjust output levels.

Current prices are “beautiful,” said Saudi Arabian Oil Minister Ali al-Naimi, when speaking to reporters prior to the OPEC meeting. “The producer is looking at this price, the consumer is looking at the price, the investor is looking at the price, and everybody is saying this is great.”

According to Jason Simpkins of MoneyMorning.com, OPEC, which supplies about 40% of the world’s crude oil, set its official cap at 24.845 million barrels per day in December 2008 and has kept it there for five straight meetings. In that time crude oil prices have more than doubled.

The wild card to deal with when it comes to higher crude oil prices is higher gasoline prices at the pump. And, since this is the season that consumers tend to see higher gasoline prices, the figures are expected to have an impact on discretionary incomes, which could hamper the economic recovery.

Across the country, retail prices at the pump have increased 3 cents in the past week, to settle at $2.787 for a gallon of unleaded fuel. The price one year ago was $2.092 a gallon.

According to The Post-Journal in New York, historical price data going back 10 years to the year 2000 shows gasoline prices have increased on average roughly 13% between March 1 and April 30.

“In these difficult times, gasoline prices pinch more than usual, and rising gasoline prices could be a drag on economic recovery,” the Natural Resources Defense Council said in a report released Wednesday. “This reality reminds us that America’s addiction to [crude] oil continues to threaten not only our national security and global environmental health, but also our economic strength.”

Americans need to prepare themselves for prices to touch $3 a gallon and spike higher as the country approaches the July 4th holiday. As crude oil prices rise, with no changes in supply by OPEC on the horizon, consumers will feel a hit to their wallets. For now, though, the one group happy to see higher prices at the pump are oil investors.

As Michael Fitzpatrick, Vice President of Energy at MF Global in New York, said to TopNews.com: OPEC “is not trying to stem the rise of prices by clamping down” on production, and this is supportive for the markets on the whole.

This article was republished with permission from Taipan Publishing Group.

By Adam Lass, Editor, WaveStrength Options Weekly

This is probably your last chance to buy into oil before it starts to plunder the economy again.

Five of the many reports cluttering up my desk this morning claim to be pertinent to the price of gas this summer.

As regular readers may recall, I track these things closely for two reasons. First, there is the effect gas prices have on the economy. Inflation may be the disease, but gasoline is one of that disease’s chief vectors, the agent that carries it deep into our economic body – and our wallet.

The second reason I track oil and gas is to make as much profit off the damn stuff as I possibly can. Just think of it as getting a little of our own back.

Red Sky in the Morning?

The first report comes to us from AccuWeather’s Joe Bastardi, who apprises us that his outfit’s slide-rule types are looking for the Atlantic and Gulf of Mexico to enjoy an unusually active hurricane season this year, both in terms of quantity and ferocity of storms.

In 2009, we saw the weakest season in a decade, nine named storms that never actually came on shore here in the U.S. In 2010 we are told to expect an above-average season, some 16 to 18 storms with at least two or three gob-smacking the homeland.

They credit this to “a weakening El Niño in the Pacific.” Apparently, this cyclic Pacific warming cycle protected us last year, and may fail to do so this year.

Or Not

Meteorology may very well be the oldest true science (I’ve always had a hunch that some of those scratch marks on the Lascaux cave walls were simply counting how many damn days in a row it had rained). But it still has a hard time with stuff like whether or not we will get three inches or three feet of snow here at Seven Oaks Farm.

Still, Colorado State University’s Tropical Meteorology Project has also called for 16 named storms, WSI is calling for 13 storms, with eight slated to hit Category 3 or higher on the Safir-Simpson Scale, Commodity Weather Group is calling 11 storms all told with five hitting hurricane strength, and most in the trade suspect that the May report out of the Fed’s Climate Prediction Center will fall in line as well.

This whole guessing game is germane to energy prices in that some 27% of our crude oil and 15% of our natural gas come out of the very shallow Gulf of Mexico. Should any of these storms rip through the Gulf, we could expect to see said supplies cut off with an attendant price increase. Heck, just the treat of same is enough to start a speculative frenzy in downtown New York.

China Wants Your Gasoline

Next up, we have a slightly more concrete issue brewing in China. It seems that the world’s fastest-growing economy has passed a critical threshold in February, when its demand exceeded internal supply, and it became a net importer of oil and associated product.

If these numbers are to be trusted (and that is always an issue when dealing with Beijing – and Washington too for that matter!), it appears that Chinese demand is up 58% year over year, with China purchasing some 1.8 million more barrels a day.

Now even here we see some rather odd caveats: JPMorgan Chase’s Brynjar Eirik Bustnes claims that some of this may be linked to low refinery utilization during the month of the Lunar New Year.

Still, one can easily imagine how this too is whetting speculators’ appetites.

OPEC Upgrades Demand – Again

Again we go to the pile on my desk, and find that OPEC is expecting to pump 880,000 more barrels per day (roughly 1.04%) this year than it did in 2009, if it has any hope at all in keeping up with burgeoning demand from both China and recovering Western economies.

The caveat here? This current call has been upgraded by some 80,000 barrels over last month’s prediction, and may yet be upgraded again in a similar manner. OPEC’s most recent statement warns that “questions remain as to how long governments will be able to support their economies.”

Which brings to the furor brewing in Washington over the Fed’s commitment to an “extended period of low rates.” It seems that a vocal minority of voting board governors feel that this pledge is boxing them in a bit.

Talk, Talk, Talk

They don’t actually want to change rates, mind you. When pressed, they concede that “the U.S. jobs market remains weak, with unemployment rate near 10% and job openings scarce.” But they would like that “extended period” phrase that was used in the last four FOMC reports changed to “some time” in the next statement. This way, investors will understand that the Fed will “not refrain from raising rates well beyond what is prudent.”

And we believe them, because the Fed has such a strong track record of fiscal prudence, right?

Your Nightmare Is a Speculator’s Dream Come True

Let’s string the dots together one more time: flood of cheap dollars (and yes, they will start getting cheaper again, now that that whole euro funk is passing) chases limited supply of oil… oil goes up… everything that travels by truck train or plane gets more expensive… inflation!

Oh, and here’s one last item of the heap: It seems that the supply of oil stateside is declining substantially faster than “the experts” were expecting. The call was for pretty much no change this week, with an even balance between imports into the plenums and use by refiners. Instead we see a 2.96 million barrel drop in the plenums.

This shortfall delighted the aforementioned speculators, who responded by jacking July crude futures to $84/bbl.

There is only one minor difference between my prediction for the economy and some of my dour compadrés’: they are calling for a double-dip recession to take down oil. I figure that oil will take the economy down into the next recession.

Both ideas stink. But mine offers a shot at some cool gains along the way.

This article was republished with permission from Taipan Publishing Group.

Crude oil prices rise on low interest rates.

Crude oil futures gained more than $1 on Wednesday after U.S. Federal Reserve Chairman Ben Bernanke reiterated his commitment to keeping interest rates low in order to encourage lending and growth which would fuel an economic recovery.

Short-term interest rates would remain exceptionally low for “an extended period,” Bernanke said.

The rise in crude oil prices took place despite a larger-than-expected gain in crude inventories reported by the Energy Information Administration today in its weekly report.

U.S. light, sweet crude for April delivery traded up $1.14 to settle at $80.01 a barrel at the close of floor trading on the New York Mercantile Exchange.

“Increases in energy prices resulted in a pickup in consumer price inflation in the second half of last year,” Bernanke also noted, “but oil prices have flattened out over recent months, and most indicators suggest that inflation likely will be subdued for some time.”

Crude oil supplies gained 3.03 million barrels last week to 337.5 million, the highest level it’s been at since November of last year.

“Right now, because of the recession, there is excess capacity” of crude oil, said U.S. Energy Secretary Steven Chu.

Fuel consumption in the U.S. was up 1.3 percent from a year earlier to 19.1 million barrels a day in the four weeks ended Feb. 19, according to the Energy Department report. Gasoline demand fell 0.3 percent to 8.7 million barrels a day.

A weakened dollar and renewed tensions over pending sanctions against Iran caused a huge surge in the price of crude oil futures during Tuesday trading in New York.

The U.S. dollar slipped against the euro as the feel in the market was that the European currency had dropped too far in recent weeks in the wake of Greece’s economic problems. When the dollar falters, traders usually pour more of their money into commodity investments.

U.S. Secretary of State Hillary Clinton’s meeting with Saudi Arabia’s King Abdullah in an effort to lobby support from Gulf states and China for sanctions against Iran also heightened tensions in the oil-rich region. Iran is OPEC’s second-largest producer of crude oil.

Crude oil for March delivery rose $2.88 to settle at $77.01 a barrel at the close of floor trading on the New York Mercantile Exchange. Trading was rather light on Tuesday with Asia celebrating the Lunar New Year.

The 4 percent spike was the largest percentage gain since late September.

A top Saudi oil ministry adviser declared his concern that a peak in oil demand had already occurred, or would take place in the next decade, and said that his country, which relies heavily on income from its crude oil exports, is alarmed enough about it to diversify its economy by striving to become a leading alternative energy exporter.

“Talk of oil demand peaking is an alarm to speed up the economic diversification process,” Mohammed al-Sabban said on Monday at the World Economic Forum in the Saudi city of Jeddah. “The challenges facing Saudi Arabia are huge: we need to develop Saudis in order to be innovative, creative, to catch up with the rest of the world.”

More than a quarter of the youth in the country are unemployed, and the kingdom is trying to upgrade their scientific and educational institutions to further their knowledge which will help them expand their economy into other areas.

Al-Sabban also announced that his country will be launching its first carbon capture project by injecting carbon dioxide into the Ghawar oil field, the world’s largest oil field, beginning in 2012.

“The world cannot wait for us before we are forced to adapt to the reality of lower and lower oil revenues,” al-Sabban added.

The theory of “peak oil” is the point where oil extraction has reached its maximum levels and is entering a state of permanent decline. Experts differ on whether most oil producing nations have already reached their peaks in oil extraction, or, as al-Sabaan contends, if crude oil consumption will begin to slow as leading economic nations begin to rely more heavily on alternative and renewable energy sources.

“The world cannot wait," for the Saudis before they are "forced to adapt to the reality of lower and lower oil revenues,” Mohammed al-Sabban warned.

Saudi Arabia is currently extracting 8 million barrels of crude oil per day, with a reserve capacity of 4 million barrels per day more.

Gulf states, which rely on crude oil exports to cover as much as 90 percent of their budgets, need to begin looking into nuclear energy as an alternative, Adnan Shihab-Eldin, a former secretary general of the Organization of the Petroleum Exporting Countries (OPEC) told the audience in Jeddah. He noted that nuclear power would be economically viable even with crude oil prices just above the $40 per barrel range.

The Saudis, as the biggest oil producer in the 12-member organization, are widely considered to be the leader of OPEC and their comments are usually looked at as a sign of what the cartel as a whole is thinking.

Saudi King Abdullah recently launched a solar-power water desalination plant in its efforts to begin looking toward alternative energy. The country provides more than 18% of the world’s production of desalinated water.

OPEC continues pumping at their high levels despite slight drop in price of oil.

There were other people who believed that oil prices would fluctuate due to Tropical Storm Erika, but this didn’t even happen. For some traders, it was as if nothing mattered and they weren’t interested in volatility.

OPEC is likely to keep their pumps going. Despite the fact analysts suggest that OPEC is pumping too much, they can’t be swayed because they are ecstatic that despite the amount they are pumping, the prices have stayed around the $60-$70 range. Most people aren’t concerned about oil prices. They are more worried about the stock market and where the dollar is going to be which has allowed oil its consistent level.

It is believed that oil will slide below $65 for the October supply which could make for a more inexpensive winter season if it stays at those levels. With winter coming and the United States known for consuming huge amounts of oil during those times, there is some concern about where the price may go. With OPEC continuing to pump the amount of oil they are, it may not go up, but it has much room to go down. Whether it happens or not, though, will rely entirely on people and when they decide to buy.

Crude oil futures traded at levels that haven’t been reached since November, after a government report showed that crude inventories gained significantly less than expected.

Crude oil for June delivery rose $2.46, or 4.6 percent, to settle at $56.30 a barrel at the close of floor trading on the New York Mercantile Exchange.

Oil is up 26 percent since the beginning of the year.

The futures contract managed to briefly touch $56.47, a level not seen since Nov. 17.

The Energy Information Administration reported on Wednesday that crude inventories increased by 600,000 barrels last week to a fresh 19-year high at 375.3 million barrels, but even so it was a much smaller build than expected. Analysts were expecting an increase in the area of 2.5 million barrels.

Among other factors in the rise in crude oil prices, were signs that the economic recession is slowing, after a better than expected job losses report was released.

While it was expected that the report would show that 650,000 workers lost their jobs in April, the data instead showed that 491,000 were actually cut off the salary rolls.

Gasoline supplies fell 167,000 barrels to 212.4 million in the week ended May 1, the EIA report showed. Expectations were for a gain of about 500,000 barrels.

Total daily fuel demand in the U.S. averaged 18.2 million barrels in the four weeks ended May 1, down 7.9 percent from a year earlier, according to the department. It was the lowest consumption level for a four-week period since May 1999.