“As oil prices headed toward $50 a barrel Monday, one of the world’s most important fuel gauges — U.S. commercial inventories of crude oil — signaled that the surge in prices may well continue,” writes Bhushan Bahree in today’s Wall Street Journal.

“Inventories in the U.S. have plunged substantially below last year’s level, confounding predictions by many analysts that stocks were building.”

“That may portend bigger jumps in the price as the Northern Hemisphere approaches winter, the season of peak oil use due to consumption of heating oil. To rebuild stocks and keep refineries humming, the actual users of oil — rather than speculators — are likely to snap up petroleum, keeping up the pressure on prices.”

“The decline in American inventories is roiling markets because the U.S., as the world’s largest oil user by far, is the main setter of world prices. The fall in stockpiles was exacerbated by Hurricane Ivan’s hammering of key producing and transport facilities in the oil-rich Gulf of Mexico. Oil output in the U.S. gulf is still running about 25% below normal, robbing U.S. refiners of needed supplies and prompting the Bush administration to make some emergency loans to buyers from the U.S. government’s Strategic Petroleum Reserve. The government is considering making more such loans.”

“Oil inventories typically peak ahead of the Northern Hemisphere winter and are drawn down to meet high demand during the cold season, leaving stocks depleted by February, when the cycle begins again to meet high gasoline demand in the summer months. In recent weeks, however, U.S. inventories have been falling. Last week they fell to 269.5 million barrels, or about 17 days of refinery demand. The industry considers 270 million barrels to be the rough minimum needed to keep the oil-supply chain operating smoothly.”

“Worries over the tight inventories and fresh signs of trouble in oil-exporting countries prompted traders to bid up U.S. oil prices to just below the $50-a-barrel level Monday. Light, sweet crude for November delivery hit a new high of $49.75 a barrel on the New York Mercantile Exchange before giving up some of its gains. It settled at $49.64 a barrel, 1.6% above Friday’s settlement price of $48.88.”

“The inventory pinch comes at a time when the world’s oil producers, including members of the Organization of Petroleum Exporting Countries, have little or no effective capacity to produce more oil. Oil markets also have been fretting about instability in the Middle East, the world’s largest oil region, and the threat of a disruption to exports from OAO Yukos, which produces about 2% of the world’s oil and which is locked in a long-running tax dispute with the Russian government.”