Developments this week
The fighting in Libya continues to push oil prices higher with NY crude futures settling on Wednesday at $102.23, the first settlement above $100 since summer 2008. In London, Brent crude settled at $116.35 a barrel after touching $117.80. The situation in Libya appears to be moving towards a prolonged civil war, with the West unwilling to intervene militarily and neither the forces still loyal to Gadhafi nor the rebels having the strength to overcome the other. The IEA says as much as 1 million b/d of Libya’s pre-uprising production of 1.6 million b/d is no longer being produced. Although a few tankers apparently are still leaving the country, much of the circa 1.3 million b/d of exports is no longer being shipped.
The Saudis announced that they have offered two European refiners additional cargoes of Arab Light crude for loading in March. Given that European refiners are facing shortfalls on the order of 30 million barrels or more per month due to the shut-in Libyan production, it is difficult to see the Saudis coming up with this much oil and getting it to European refiners on short notice. Most knowledgeable observers are skeptical that the Saudis can make up for the loss of the high-quality Libyan oil.
The weekly US stocks report showed a drop in US crude inventories of 364,000 barrels as opposed to a 750,000 barrel gain forecast by analysts. US gasoline inventories fell by 3.6 million barrels contributing to another rise in NY gasoline futures of 4.6 cents a gallon to close at $3.03. Forecasts that average US gasoline prices will be above $4 a gallon by the Fourth of July are now widespread. For now, however, US demand for oil products continues to run 1–2 percent above last year at 19.6 million b/d.
In addition to concerns that the fighting and reduction in oil production in Libya may be prolonged, concerns are rising over the possibility of domestic unrest in other Middle Eastern oil-producing countries. Websites are calling for a Saudi “Day of Rage” on March 11, and there are reports of demonstrators clashing with security forces in Tehran on Tuesday. In Oman, which produces nearly 900,000 b/d, the protests have spread to the capital. In Iraq, the country’s largest refinery was badly damaged by a militant attack.
Newly released Chinese numbers show an 80-percent reduction in gasoil exports in January year over year. This suggests that Beijing is still concerned about diesel shortages developing during the spring planting season. Although some precipitation has fallen on China’s winter wheat crop, the situation remains serious.