Oil prices rose briefly after traders examined the Weekly Petroleum Status Report, published by the Department of Energy. Shortly after noon, oil had climbed back to nearly $80, while gasoline futures had risen a penny.

In the report released today, the DOE said oil inventories climbed 3.0 million barrels to 337.5 million barrels. Gasoline inventories fell 900,000 barrels but remain nearly 7% higher than a year ago to 231.2 million barrels. Inventories of distillate fuel also dropped- but a smaller 600,000 barrels.

Looking at the overall report, gasoline production has jumped, likely as wholesale prices and margins begin to improve for refiners. Facilities produced nearly 500,000 more barrels per day than they have in weeks past. Overall, refinery utilization increased to over 81%, the second highest figure in 2010.

Another factor I want to highlight is the amount of oil the U.S. currently holds in our Strategic Petroleum Reserve (SPR). The SPR was created after the 1973/1974 oil embargo, designed to provide emergency oil for several situations- in case of war, in case of a major supply disruption, etc. Most recently the SPR has been used to provide oil to refiners after major hurricanes. The SPR today has a capacity of some 727 million barrels. At today's demand levels, it would provide roughly 38 days of typical use (note- the DOE reports 72 days of protection including domestic crude supply). However, if the situation gets grim enough, you can bet we wouldn't be using the oil provided for normal uses.

This week, the DOE reported the amount of oil in the SPR stands at 726.6 million barrels, a mere 400,000 barrels from being full. The SPR holds two types of oil, separated from each other. Sour crude, which contains more sulfur and is of lesser value, and sweet crude, which is easier to refine and of greater value.

As of last December, the SPR contained 292.6 million barrels of sweet crude and 434 million barrels of sour crude. Typically, the reserve is filled via oil given to the United States government in exchange for the right to drill in certain areas, aka "royalty-in-kind" agreements.

I would believe that with the SPR at current levels, it should aide in putting pressure on oil prices to fall, however, that does not seem to be the case. I rarely see articles that mention the level aiding in pushing prices lower.

However, in recent years, lawmakers have decided to increase the size of the SPR to -one- billion barrels. Wow- that's a huge amount of oil sitting in storage! At this time, the DOE has begun the process of finding an adequate place to store the additional crude that an expansion would bring. Typically, the crude is stored in underground salt caverns near the Gulf of Mexico. The area is a good location as the proximity to a signification portion of refining capacity is excellent.

Hopefully with the addition of nearly 250 million more barrels of crude to the SPR, it will help lower the "risk" premium that each and everyone of us pays on each gallon of gasoline. I estimate the premium to be nearly 10-20% of the cost of oil, some $10-$15/bbl- its completely foolish for small geopolitical issues to drive up oil prices when we have 727 million barrels of oil sitting underneath us, ready for refining!