Prices and production

Prices moved steadily higher this week, opening on Monday at $77 a barrel and closing Wednesday at $80.40. The weekly stocks report, which triggered the jump on Wednesday, showed that US crude stockpiles fell unexpectedly by nearly 4 million barrels, gasoline by 290,000 barrels, and distillates by 380,000 barrels. US refineries operated at only 80.6 percent of capacity, the lowest since April and crude imports were down to 8.13 million b/d, also the lowest since April. US refiners clearly are making an effort to cut inventories and drive up the price of gasoline in order to improve profits which have been weak in recent months.

The Federal Reserve announced Wednesday afternoon that it will keep interest rates close to zero. This is seen as leading to a weaker dollar and higher prices for dollar-denominated oil. Following the Fed’s announcement, the dollar fell by nearly 2 cents against the Euro.

US demand for oil products in the last four weeks has averaged 18.8 million b/d which is down by 4.5 percent from the same period last year. Most of the decline has been for distillates which are down nearly 15 percent from 2008. US gasoline demand, however, is largely unchanged from this time last year.

A Bloomberg survey shows OPEC increasing output by 80,000 b/d in October and Russian production remains at a post-Soviet era high of over 10 million b/d. Forecasts for increasing demand from China continue. Chinese manufacturing was reported up in October, and the World Bank now expects an 8.4 percent increase in China’s GDP this year and 8.7 percent next year.

A leak from the IEA

November 10th will see the release of the IEA’s annual report World Energy Outlook 2009. Last year’s release created quite the stir, when the Agency recalculated world depletion rates and cut projected world oil consumption in 2030 to 106 million b/d.

This week The Wall Street Journal ran a story saying that next week’s release will make a “substantial” but unspecified downward revision in the long-term forecast for global oil production. Curiously, the Journal casts this drop in production as coming from a drop in global demand for oil rather than stemming from production constraints. The source of the report says that “demand-management policies,” such as efforts to control carbon emissions in developed countries, are the major factor in the reevaluation.

The Journal clearly has trouble grappling with the implications of its own report that the IEA is now forecasting still less growth in world oil production over the next 20 years. The obvious conclusion, that little or no growth in oil production means little or no economic growth, is not mentioned. Instead the author conjures up people called “demand pessimists” and implies that if these pessimists are correct, oil prices will remain low (at least below economy-wrecking levels) because of lower demand. Even Cambridge Energy is brought in to say “we are headed into new days when the growth in energy consumption will be more subdued.”