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Oil Prices Quietly Reach New Highs

Stocks spiked late in trading today after the Federal Reserve released the minutes of its most recent Federal Open Market Committee meeting, but the euphoria only lasted a few minutes before markets settled near breakeven for the day. As of 3:15 p.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down 0.18%, while the S&P 500 (SNPINDEX: ^GSPC  ) has fallen just 0.19%.

The FOMC meeting minutes released today showed that about half of the members thought the Fed's $85 billion-per-month asset purchase program should end late this year. This isn't earth-shattering news, but it gives investors an idea as to what the Fed thinks about the future of the economy, interest rates, and tapering. If unemployment falls in the second half of the year and GDP grows, it will likely lead to reduced asset purchases, although Ben Bernanke and Co. have some wiggle room depending on what data shows. So we should expect higher interest rates to continue, which isn't all bad, because it shows that the economy is improving. 

It may not be getting the same attention today, but oil has quietly reached a new 52-week high of more than $106 per barrel. The U.S. Energy Information Administration said crude-oil stockpiles fell 9.9 million barrels last week following a 10 million-barrel drop the week before. To put that figure into perspective, the U.S. consumes about 19 million barrels per day, and there are a total of 374 million barrels of crude-oil reserves, not including another 696 million barrels in the strategic petroleum reserve. 

Dow components ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) have actually fallen slightly on oil's new high because they may not see a big benefit from higher prices. Oil is becoming more expensive to extract, and demand isn't rising rapidly, which would lead to higher profits from refining, retail, and extraction. Instead, demand is flat or declining slightly in the developed world, and there are big worries that supply disruptions will hit the Middle East as violence spreads there.

High oil prices will also squeeze refining activities, which have enjoyed high profit margins because gas prices have remained elevated despite oil's falling to less than $100 for much of the past year. The higher prices may squeeze margins, making high oil prices both a positive and a negative for big oil.

Big oil may not pop on high oil prices, but there are some companies that will definitely benefit from high oil prices. For some currently intriguing energy plays at the leading edge of oil exploration, check out The Motley Fool's "3 Stocks for $100 Oil." For FREE access to this special report, simply click here now.

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  • Report this Comment On July 10, 2013, at 5:47 PM, plange01 wrote:

    oil speculators are taking advantage of america being without a president and are openly manipulating prices to take advantage of increased summer travel.and why not its worked many times already and there is no one to stop them...

  • Report this Comment On July 10, 2013, at 11:59 PM, shineridge wrote:

    The price of oil has risen by over 200% over the last 10 years. Now, it's maybe headed back up to record highs again. If so, watch the already FRAIL economy really hit the skids.

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