Oil Taking A Break

After a tremendous run last summer, the cost of a barrel of oil virtually imploded along with the rest of the economy. Since mid-February, crude prices have improved dramatically. The United States Oil Fund (NYSE: USO), which aims to track the performance of crude, has nearly doubled. The past month has provided much in the way of new gains for crude investors as the price of oil has dropped back below $80 per barrel. The jury is out as to the direction of oil's next big move.

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Running on Fumes

From a fundamental standpoint, crude may have met its match for the time being. A report issued by the U.S. Department of Energy on Wednesday only put further downward pressure on oil. Crude stockpiles rose by 2.1 million barrels. This jump caught many by surprise as it greatly exceeded the average analyst forecast of an 800,000 barrel increase.

The rise in crude inventories was not the only negative development for investors who are long commodities. Gasoline stocks surged up to the tune of 4 million barrels, which was also well above the average analyst estimate of a 700,000 barrel pop. The United States Gasoline Fund (NYSE: UGA), which has trended upwards for the better part of 2009, was dealt a 2.1% loss by mid-afternoon on Wednesday.

Mixed Messages

James Hackett, the CEO of Anadarko Petroleum (NYSE: APC), told The Wall Street Journal that his company is looking to put $4.5 billion, a figure at the higher end of this year's budget, into capital expenditures in 2010. In the interview, Hackett did not rule out the possibility of Anadarko expanding its presence in Ghana's Jubilee oilfield which is estimated to hold between 600 million and 1.8 billion barrels of oil. Hackett did concede that the economy will likely need some time and some signs of improvement before the market can expect to see oil prices rise back at 2008 levels.

ConocoPhillips (NYSE: COP) will probably not be looking to expand as aggressively as Anadarko next year, but still plans to sink $11.2 billion into capital expenditures in 2010. This figure is 10% below what the company is estimating it will spend this year. This pullback in capital expenditures at COP seems to be more the result of an aim to build cash and pay down debt rather than a negative sentiment towards the future of the oil industry.

The Bottom Line

Wednesday's report from the Department of Energy serves as a reminder to investors that the recovery in crude prices may come in fits and starts. Although USO and other energy players have been met with resistance, the actions of Anadarko and other major oil and gas firms seem to indicate that the break that oil is taking may only be temporary. (For an overview of oil economics, read What determines Oil Prices?)

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