Prices and production
It has been a quiet week so far with oil opening on Monday and closing Wednesday at $76. The weekly stocks report showed a 2 million barrel increase in crude and a 4 million barrel increase in gasoline inventories. US oil consumption for the last four weeks was down to 18.4 million b/d, the lowest November consumption since 1995. US refining last week was down to 79.4 percent of capacity, 5 percent lower than last November and lowest in 14 years.

The EIA revised its US oil consumption for September down by 2.7 percent to 18.3 million b/d. US demand for gasoline, however, is still holding up in comparison to other oil products. During November gasoline consumption was up by 0.7 percent over last year and for the first 11 months of 2009 was up 0.3 percent over 2008.

The tension between weak US demand and Asian growth continues to drive the oil markets. On Tuesday, China announced that its manufacturing had expanded at the fastest pace in the last five years.

Analysts are expecting China’s oil consumption to increase by 4 or 5 percent this year and next. India reported its GDP in the third quarter was up 7.9 percent over last year.

OPEC continues to increase production which is now at its highest level in almost a year. Various OPEC officials continue to say there will be no change in the quotas, which are again almost meaningless, at the next meeting.

Iran
As the price of oil goes up and oil revenues increase, Iran once again is becoming more bellicose. Two days after it was censured by the IAEA for maintaining a secret enrichment plant, Tehran announced that it would build 10 new sites for enriching uranium. The speaker of Iran’s parliament said Tehran sees little benefit for membership in the Non-Proliferation Treaty.

As tensions between Tehran and the world powers increased, President Ahmadinejad announced that Iran is too important to effectively sanction, and Iran’s Oil Minister warned that the country may stop oil exports if economic sanctions continued. The minister noted that any reduction in Iranian oil shipments would cause world oil prices to surge.

The new factor in the Iranian nuclear enrichment issue is that Russia, and to some extent China, has come to realize that their national interests lay in non-nuclear-armed Iran. Should Tehran acquire or seem to acquire nuclear weapons, the consequences could become very serious. Should the US, the EU, China and Russia all join in enforcing some form of increased economic pressure on Iran, the results could be extremely serious for the Iranian government.

In the meantime, Tehran is hard at work overhauling the country’s economy, particularly reducing the decades-old subsidies for petroleum products. Reducing gasoline consumption would benefit the Iranians should some form of gasoline embargo be imposed by the UN. However, ending the subsidies could also lead to considerable domestic turmoil.