This week saw this report on oil stockpiles from Reuters: "Total U.S. commercial stockpiles rose slightly last week by 200,000 barrels to hit a new 20-year high just above 1.143 billion barrels, the highest level since the EIA began issuing weekly reports in 1990."

And yet, oil rallied in the last two weeks more than three dollars, as of yesterday trading $77.50 a barrel.

What can make supply increase to historic levels and still allow the commodity to rise in price? It is "oil's endless bid."

"Oil's endless bid" is what I have called the "assetization" of financial oil, working through index investment, ETF trading and dedicated energy hedge funds. They are all entering the futures markets without regard to the fundamentals that underlay the commodities.

Oil's Endless Bid is also the title of my upcoming book from John Wiley and Sons, discussing this topic, which I believe is the most important financial story of the decade. But this week's EIA report draws this disconnect into such sharp and immediate focus.

Let's discuss "oil's endless bid" briefly and try to understand how oil can rally while supplies continue to bulge.

Commodities aren't stocks, but the financial industry has worked hard to make them look and work as if they are: They've created indexes, ETF's and managed funds that allow investors to access the price of the crude barrel as if it were a share of Chevron.

And the investing public has glommed onto the products with both fists, causing index investing in commodities to increase more than 25 times between 2003 and 2008 to over 300 billion dollars in funds and increasing the number and market caps of futures based ETFs as well. The market-leading US Oil Fund ( USO) has had three share expansions since its inception and now trades an average of more than 9 million shares a day.

All of this investment interest in oil has swamped out the traditional users of the financial oil market - the oil companies and commercial end-users - and turned the price discovery mechanism into just another capital market, under influence from unrelated financial inputs and moving on the whims of investor perceptions.

I could point out literally dozens of short-term economic pressures over the last several years that have had no impact on the fundamentals of oil, yet have had enormous influence over the price of oil, one of the latest being the BP oil spill, which momentarily scared investors away from oil investment and saw the price drop more than 25% in less than three weeks in May.

We can see some of these fundamentally negligible inputs have tremendous price effect this week, in spite of the EIA reports which would intuitively make one expect lower prices, not higher ones.

Recently one of the larger Enbridge ( EEP) has pipelines pumping crude from Canada sprung another leak. I say another, because this system was the one responsible for the recent Kalamazoo, Mich. spill. Infrastructure like these pipelines have always been an issue and have become more of one, as many of these systems are approaching their 30-year anniversary of service.

Still, it is hard to relate a short-term shutdown of this pipeline into the violent rally that oil saw because of it. More logically, traders overestimated the effect of a supply shortage and rushed to buy oil, expecting to take advantage of a rally.

Just as influential, even though it should intuitively have an opposite effect, has been the recent stock market rally. As financial oil gets used as any other capital market, it is subject to the same capital inflows as stocks are.

We have seen how closely the motion of oil and stocks has been even though intuitively they should move in opposite directions - after all, nothing is much better for business than a declining price for energy. And yet, as the stock market has rallied in the last two weeks, so has the oil market - in total disregard for supply surpluses.

These financial inputs have meant more to the price of oil than the traditional fundamentals of supply and demand -- and are the reasons why oil can shrug off a 20-year supply bulge and still rally higher. "Oil's endless bid" has become the most important fundamental.

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At the time of publication, Dicker was long BP.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.

Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.

Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.

Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.

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