Get Used to These Higher Oil Prices

Oil prices are at their highest since the start of the year, after rising above the key $50-a-barrel mark in September and holding those gains. Rather than pure speculation, this move is rooted in fundamentals: falling inventories and increasing demand. The outlook for crude is no less bright as U.S. fiscal stimulus, in the form of tax cuts financed by additional deficit spending, could also send prices higher.

In the U.S., total stocks (excluding the Strategic Petroleum Reserve) are down 5.6 percent from a year ago, with distillate inventories lower by 14.4 percent at a time when economic growth has been solid and diesel demand is likely to remain strong. Plus, heating oil demand will soon kick in as the winter approaches. And if refinery runs increase to meet these product deficits -- which seems likely -- demand for crude would strengthen, further boosting prices.