Prices and production
Oil prices climbed slowly on Monday and Tuesday this week on expectations that the economy was doing better. When the weekly stocks report was released on Wednesday showing that US crude stocks had fallen by 5 million barrels, considerably more than the 1.5 million barrel decrease expected by analysts and the 1.5 million barrel increase reported by the API. The news briefly sent oil prices above $78, the highest it has been in two weeks, but settled to close at $77.04 after the Federal Reserve minutes suggested that maybe the economy was not doing as well as previously estimated.
US crude inventories have fallen by 12 million barrels during the last three weeks on lower imports and higher refinery runs. Gasoline and distillate inventories continue to grow as demand for fuel dropped 4 percent last week. Gasoline consumption over the 4th of July holiday was particularly weak.
Boone Pickens reiterated this week that he expects to see oil at $85-90 a barrel this year and $95-100 in 2011.
The Oil Market Report
The IEA’s monthly report issued earlier this week contains a trove of interesting new information and projections as the Agency attempts to grapple with rates of economic growth, oil depletion, investment, deepwater moratoriums and new regulation, and a host of other factors that impinge on the world’s oil markets. The full report, which will not be made public for another two weeks, is said by those with access to estimate a drop in global oil production of 255,000 b/d in June. This comes on top of a drop in global production of 575,000 b/d in May, no growth in April, and a 220,000 b/d drop in March. February was the last month to show substantial growth.
The Agency is still estimating that 2010 demand will average 86.5 million b/d or an increase of 1.8 million b/d over 2009. In its first projections for 2011, the IEA has consumption rising by another 1.3 million b/d to 87.8 million. Most of the increased consumption naturally will come from Asia as OECD consumption is forecast to drop a bit. Apparently, amidst all this growth in demand and what sort of looks like falling world production, we do not have to worry about higher prices as the Agency assures us that OPEC will continue to have 5.5 to 6 million b/d of spare capacity that could be brought into production to meet any emergency.
The Agency expects that Chinese oil demand will rise just 4.8 percent next year to 9.5 million b/d as compared with this year’s growth of 9.1 percent.
There is obviously a lot that does not add up in this mélange of lower real production, rapid growth in Asia, steady prices, lower and less-productive investment and a variety of serious deepwater production problems. Matters may be coming to some kind of a head over the next 18 months, in alignment with IEA warnings in 2007 of an oil crunch by 2012.