Developments this week
So far this week, NY oil has traded around $104 a barrel and London around $115. Small movements came with the ebb and flow of the battle in eastern Libya as the insurgents first advanced and then retreated after they were outflanked by government forces. Oil fell briefly on the news that insurgent forces had captured the eastern oil ports and might resume the sale of oil. The major news of week was that government forces had outflanked the enthusiastic but disorganized rebel force and forced them to retreat toards Benghazi. Despite the intervention of foreign airpower into the fight, the monumental disorganization of the rebel force suggests a protracted conflict may be ahead.
The weekly stocks report showed US crude inventories climbing by 2.9 million barrels, about double what the market expected. US crude stocks have risen by 21 million barrels since the beginning of the year. Stocks at the Cushing Okla. oil delivery point increased to 41.9 million barrels -- a new all-time high. This suggests that it may be quite some time before the $11 a barrel spread between NY and London futures returns to normal levels.
The EIA reported that demand for gasoline in the US dropped 2.3 percent last week as the average retail price for regular gasoline reached $3.60 a gallon. US gasoline stockpiles fell by 2.7 million barrels last week. Some of this may be due to the sudden increase in demand from Japan. In NY, gasoline futures closed at a recent high of $3.06 a gallon.
The situation surrounding Japan’s leaking nuclear reactors has taken a turn for the worse as increasing amounts of radioactive material leaks into the sea. The government has decided to scrap the 4 damaged reactors, a process which could take decades to complete. In the meantime, saving power is a new priority for the Japanese and the disruption to normal business and manufacturing activities could continue for many months. Japanese car dealers around the world are already running short of inventory.
New US Oil Policy
On Wednesday, President Obama announced a new goal for the US of reducing imports of foreign oil by one-third by 2025 and said that the US must increase domestic oil production considerably. The government plans to speed up the issuance of drilling permits and offer incentives for federal leaseholders to begin producing oil and gas as quickly as possible.
The plan also calls for securing access to diverse and reliable sources of energy, including increasing natural gas supplies, replacing oil with natural gas in power generation, and increasing sustainable bioenergy production. The administration proposes to set new fuel economy standards for trucks, vans and buses built in 2014-2018 and higher standards for passenger vehicles from 2017-2025 to be announced in September. Federal agencies will be required by 2015 to purchase alternative fuel vehicles, including hybrid and electric vehicles. The administration proposes increased funding for cellulosic and advanced biofuels technology as well as innovation in advanced battery technology.