Oil prices could rise as a result of rebounding factory activity


Growth in the manufacturing sector could increase demand for energy and drive up the price of oil.

In a previous post, we looked at some of the trends in national employment statistics, which point to a strengthening U.S. economy. The Institute for Supply Management (ISM) recently offered further evidence of improvement with a report that showed American manufacturers expanded their operations in February.

The organization set its Purchasing Managers' Index, which measures the change in factory activity, at 54.2 for February, up from 53.1 in January. This marked the third straight month in which the reading was above 50, which indicates growth in the sector.

According to the U.S. Commerce Department, orders for industrial machinery and other "core capital goods" have risen considerably in recent months, while surveys point to rising optimism among consumers and business leaders. This suggests that companies are expanding their capacity, despite concerns about federal budget cuts and other potential stumbling blocks.

Higher demand for electricity could push up energy prices

A sustained uptick in domestic manufacturing could increase demand for energy to the point that it begins to put upward pressure on oil prices. Any significant increase in the value of the resource would incentivize domestic producers to initiate new exploration and production activities, while taking steps to maximize output from established oil and gas wells.

Upgrading current oil production equipment can help companies tap into fresh reserves or give new life to old plays and ensure that they are getting the most of their efforts. Implementing an oil jet pump or other hydraulic lift equipment can be especially helpful in this area.

Jet pumps are particularly versatile solutions, as they can even be used to resume production from wells in which problems with the casing preclude the use of artificial lift equipment.