With the recent upward trend, it seems more like early Spring than it does Autumn. This year we've seen an unprecedented upward streak that has many people asking: why?

October 4, the U.S. national average stood near $2.46 per gallon while Canada sat at 95c/L. Today, some three or so weeks later, we've jumped to $2.67 in the U.S. and Canada has hit nearly 101c/L. So- what's happened this fall that hasn't allowed prices to continue to be low?

There are definitely a few factors that have caused prices to rise, and I'll try to explain them for you. The first reason I suspect that prices have risen is the data seen in the weekly-issued DOE report. Starting with the week ending October 9, we saw gasoline stockpiles tumble... a lot! The report for that week indicated the U.S. consumed a whopping 220 million gallons MORE than we produced. During the fall months, a fall in stocks is not a surprise, but when stocks fell by that amount, it surprised many, myself included. This started a chain of events that have led to higher prices. The week following the initial bad report, the week ending October 16, also featured more bad news. Stockpiles had again fallen 96 million gallons (2.3 million barrels). In just two weeks, the U.S. lost near eight million barrels (over 300 million gallons) of gasoline. This caused some alarm.

Also pushing prices higher was a weak U.S. dollar. Why does this make oil prices rise? It makes oil cheaper in Europe, and some traders use oil to hedge when the dollar loses value. Since oil is traded globally in U.S. dollars, any weakness in the dollar makes oil cheaper to just about everyone except us. I did some math- since April 20, oil prices have risen over 40% here in the U.S. At the same time, prices in European countries have risen 31%. This is simply because the dollar has weakened.

Also a factor in rising prices is the mentality behind "Dow 10000". When the Dow Jones average closed above 10,000 for the first time in many months, it seemed to signal that the economy is starting to recover, which many traders believe will boost oil consumption here in the U.S. Demand has already increased compared to last year, but is still down from long term averages. It's only a matter of time before demand recovers, and this worries traders against a backdrop of Chinese demand, a weak dollar, and falling inventories.

There is a virtual tug-of-war going on with oil and gasoline prices. Some factors are pulling prices lower while some factors are pulling prices higher. For the last month or two (before prices rose), we had a tug-of-war that featured two balanced sides. Prices did not drop, but they did not rise. Now with the poor news we've seen, the tug-of-war has shifted to one side- rising gasoline and oil prices. I suspect we may be stuck in an upward trend for a few weeks or a few months! It is important to note that earlier this month I was one of the analysts who expected prices to fall further, behind a backdrop of rising supply. Isn't it amazing how quickly that supply can dry up if refiners lower their output?

Ick. Hopefully it'll be easier to see that coming next time!