Prices and production
After touching a 15-month high of nearly $84 a barrel on Monday morning, oil prices have fallen steadily this week due to forecasts of warmer weather, signs that China is tightening credit, a stable dollar and a 3.7 million barrel increase in US crude inventories. Oil closed at $79.65 on Wednesday.

A surge in imports along the Gulf Coast last week suggests that at least some of the drop in US crude inventories during December may have been related to efforts by the oil companies to avoid taxes that are assessed on oil in inventory at the end of the year.

Although temperatures are returning to normal in much of the US, Europe and China are still suffering severe winter weather. England is running short of natural gas, forcing the closure of some industrial facilities. In China numerous electrical generating plants are running short of coal. This year most of the heavy snow has fallen in northern rural areas, making it unlikely that much additional oil will have to be imported to make up for shortfalls in coal deliveries and electricity generation.

Venezuela has begun at least five months of rolling blackouts to counter the severe shortage of water in a key reservoir that is threatening to halt three-quarters of the country’s electrical supply.

Should the conservation efforts fail, there is likely to be some as-yet-unknown impact on the country’s oil exports later this year.

The McMoRan Exploration Co. announced what could be one of the largest oil and natural gas discoveries in the shallow waters of the Gulf of Mexico in decades. The new 28,000 foot deep discovery is located in 20 feet of water only 10 miles off the Louisiana coast.

China’s Economy
On Monday Beijing announced that its exports had climbed by nearly 18 percent over December 2008; total imports were up by 56 percent; and oil imports were up by 14 percent. Although these numbers sound impressive, Chinese exports and imports were unusually low a year ago. This large increase in oil imports suggests that increasing Chinese demand has been behind some of the strength oil prices have shown in recent weeks.

China’s December import figures, showing a 56 percent year over year increase have all the earmarks of an overheated economy. Beijing quickly moved to increase bank reserve requirements and placed other restrictions on lending. Again questions are being raised as to just how long this government-stimulated boom can continue.

On Monday, the New York Times reported that wealthy hedge fund investor James S. Chanos is warning that China’s hyper stimulated economy is headed for a crash. Chanos is known for anticipating the Enron bubble and other highflying companies whose stories were too good to be true. Yet the investor apparently hasn’t been following China’s boom that long.