Prices and production

After falling for 9 straight trading sessions, oil reversed on Wednesday and climbed nearly $2 a barrel to $72.66 after the EIA reported that crude and distillate stocks fell considerably more than analysts anticipated. Earlier this week oil had touched $68.59. US crude inventories are now at 332 million barrels, the lowest since last January. With inventories still high, refineries operated at only 80 percent of capacity last week, down 1.1 percentage points from the prior week. US crude imports last week were only 7.7 million barrels, the lowest since September 2008 when the ports were shut because of hurricanes.

The EIA also reported that US fuel consumption increased by 6.7 percent to 19.6 million b/d last week. This was the biggest one-week jump in consumption in over five years. The AAA expects a 3.8 percent jump in holiday travel this year. Distillate stocks dropped by nearly 3 million barrels as colder weather enveloped much of the northern US.

The Iranian nuclear situation continues to fester with Tehran testing an upgraded long-range missile on Wednesday. This provocation, coupled with Tehran’s intransigence on the nuclear issue, increases the likelihood that stiffer sanctions will be imposed during 2010.

Car bombs continued to go off in Baghdad this week despite all the talk that Iraq will soon be the world’s leading oil producer. The oil facilities off northwestern Australia are about to be hit by a Cat 5 hurricane.

Trouble in Copenhagen

Discussions are not going well. It now seems unlikely that any substantive agreement will be signed this week. The meeting apparently has turned into a general venting of the international grievances that have accumulated over centuries – colonialism, trade barriers, capitalism, communism, rich vs. poor, tariffs, subsidies, verification, Kyoto, and the list goes on and on. Many states appear to have approached a climate treaty as a means of gaining economic advantage over rivals or extorting money from richer nations.

With many people, political parties, and even nations still skeptical of the need for a treaty and few willing to take the lead in making harsh economic sacrifices to control climate changing emissions, prospects for a meaningful global treaty at this time do not seem bright. Until the US and China reach some sort of a fundamental understanding regarding their economic relationship, visions for the future, and their respective roles in the world, little is likely to be accomplished