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Category: Editorials Editorials
Published: 02 May 2016 02 May 2016

All of us loved paying less than $2 a gallon at the pump. AAA reports: "Americans paid cheapest quarterly gas prices in 12 years"'which resulted in savings of nearly $10 billion compared to the same period last year. However, oil (and, therefore gasoline) has been creeping upward since the February low'topping $45 a barrel, a high for the year. And that could be a good thing.

While low prices at the pump have been a boon to consumers, the plunge in oil prices has been a bust for American producers.

Throughout the past 20 months, crude oil prices have dropped almost 80 percent, nearly 300,000 people are out of work, and corporate valuations for oil and gas companies have plummeted'even Exxon Mobil's credit rating has been downgraded. In this environment, bankruptcies are frequent, and stock portfolios and retirement funds are feeling the pinch.

You may not care about "big oil," but there's still reason to be positive about the rising prices.

There are several causes for uptick. First is the weaker U.S. dollar. As oil is traded in dollars, a weaker dollar means that it takes more of them to buy the same amount of oil.

Additionally, we are heading into a busy summer driving season and refineries are switching to the more expensive "summer blend." The switch typically means a brief shut down for maintenance'which reduces the gasoline supply. Summer driving increases demand.

Globally, oil production is down due to a workers' strike in Kuwait that took about 1.3 million barrels a day of production offline, and disruptions in Iraq, Nigeria, Venezuela, and the North Sea. Former investment advisor and financial writer Tony Daltorio writes: "That brought the total to roughly 3 million barrels a day that were offline." In the U.S., according to the Wall Street Journal (WSJ), "oil production has fallen below 9 million barrels a day in recent weeks, down from a peak of 9.7 million barrels a day last April."

In addition to supply contractions, there is a "risk" factor in the calculations. Risk can mean disruptions from a geo-political situation, such as those threatening to erupt in the Middle East, or weather. Because of the now-constant volatility in the Gulf States, that risk is already factored into the global price of crude oil.

But risk can also come from weather disruptions. Energy economist Tim Snyder explains: "Last week's hurricane prediction report from renowned Colorado State University Professor, Dr. Phil Klotzbach predicted that due to more of a La Ni+