Prices and production
Oil prices have been volatile this week, opening at $75 on Monday, falling below $73 on Tuesday and closing at $77.33 on Wednesday. The prospects for a Greek bail-out, movement of the Euro, and hopes for a US economic recovery were major factors behind the activity. On Tuesday, oil prices gained nearly 4 percent on a falling dollar and a stock market rally. While the weekly stocks report has been delayed until Thursday because of the President’s day holiday, the API reported that US crude inventories fell by 63,000 barrels; gasoline and distillate inventories increased by nearly 3 million barrels, suggesting that demand remains weak.

MasterCard reported that US gasoline demand fell to the lowest level in since the 2008 Gulf hurricanes last week; however, record snowstorms across the much of the US kept drivers off the roads.

Iran
The US stepped up the pressure on Iran this week with Secretary of State Clinton, National Security Advisor Jones and JCS Chairman Admiral Mullins all making public statements concerning the situation. Clinton said evidence is accumulating that Iran intends to produce nuclear weapons and is headed towards a Revolutionary Guard military dictatorship, while Jones and Mullins talked of imposing tough sanctions on Iran. According to the Israeli press, Mullins told reporters in Israel that a military strike option is still on the table. The New York Times ran a story saying that after a year of diplomatic efforts, the Obama administration was nearing the end of its patience with Tehran.

Even the Saudis chimed in on the debate by noting publically that the threat posed by Tehran demanded “a more immediate solution” than sanctions – presumably meaning some sort of blockade or military action. The US is said to be seeking Saudi help in getting Beijing to agree to sanctions, presumably by guaranteeing that the Saudis would make up for any loss of Iranian oil shipments that might result from the sanctions.

On Tuesday, the government-controlled Chinese press ran a story noting that Moscow is saying that Tehran should start improving its cooperation with the IAEA; if they don’t, sanctions against Iran cannot be ruled out. Some would see this as yet another warning that Beijing may be reevaluating its policy and may be coming to the view that its acquiescence to harsher sanctions may be better than letting Tehran continue on its present course of increasing confrontation.

In the meantime, President Ahmadinejad continues to say that he still is ready to swap his low-grade uranium for 20 percent enriched fuel even from the US, but threatened that any country attempting to impose harsher sanctions on Tehran would regret its actions. In the past Tehran has said it will reduce oil exports, thereby driving up oil prices if sanctions are imposed.