Developments this week
Oil in New York traded in a narrow range around $91 a barrel this week settling a bit lower at $90.86 on Wednesday; while in London Brent crude settled some $7 higher at $98.16. A fluctuating dollar, concerns about the weekly stocks report which is delayed until Thursday this week, and a weaker-than-expected US housing market were of concern to the oil markets. Analysts expect US crude inventories fell by about 2 million barrels last week due to the temporary shutdown of the Trans-Alaska oil pipeline. The Alaskan oil leak has added uncertainty to the inventory estimates as this is the time of year when inventories usually build.
Large inventories at the Cushing, Okla. delivery point for US oil contracts continue to keep US futures prices well below those in London. The IEA said this week that Brent crude, traded in London, is gaining global prominence as the benchmark pricing standard over West Texas which is saddled with local issues. There are also concerns that NY contracts are being distorted by “long-only” fund investors.
The IEA also reported in the January Oil Market Review that China’s demand for oil exceeded the 10 million b/d level in November for the first time to reach 10.2 million b/d. The Agency is not expecting China’s oil consumption to continue at this pace for much longer as the extra-large consumption in November was thought to be due to the temporary closure of inefficient power stations in order to meet year-end efficiency goals.
IEA calls for increased OPEC output
In the wake of newly revised estimates that global energy demand for 2010 was 87.7 million b/d — 320,000 b/d higher than estimated last month — and demand in 2011 will be another 1.4 million b/d higher still, the IEA is clearly having second thoughts about the adequacy of global oil supplies this year. With prospects for little increase in non-OPEC production, IEA Executive Director Nobuo Tanaka said, “OPEC must continue to be alarmed” over the recent increases in oil prices and suggested that by formally increasing its output ceilings, OPEC could help hold down prices.
OPEC’s Secretary General bluntly responded to Tanaka’s statement by asserting that commercial stockpiles and OPEC's spare capacity remain robust; and that the recent price increase is due to temporary factors such as a weak dollar, unusually cold weather, speculation, and shutdowns in Alaska and the North Sea. He further stated that "any assumption that there is tightness in the market ... is incorrect. ... [T]here is more than enough oil on the market." He concluded by saying, “Supplying the world's media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets. ... The IEA must be consistent in their remarks."
In its recent report the IEA noted that if oil rises to and stays above $100 a barrel in 2011, global oil expenditures could rise to above 5 percent of GDP, threatening economic recovery.