Developments this week
Crude prices in NY and London edged higher this week with NY closing on Wednesday at $108.83 and London at $122.30. The spread between London and NY futures widened to nearly $14 a barrel again as NY futures were stuck in a trading range around $108 a barrel. At the Cushing, Okla., delivery point for NY futures contracts, stockpiles remain at an all-time high of 41.9 million barrels which continues to distort the US oil market. London, however, continues to be sensitive to international developments and at one point on Friday oil was traded over $123 a barrel.
The oil markets continue to focus on events in the Middle East. Fighting in Libya around the oil port of Brega continues. In the east, Gadhafi’s forces have adopted the tactic of moving armor into cities and surrounding it with civilians as a means of deterring NATO air strikes. Government forces may now be wearing civilian clothing and moving in civilian vehicles. A tanker that may be carrying as much as a million barrels of crude left the rebel-controlled city of Tobruk on Wednesday. Qatar chartered the tanker and will sell the oil on behalf of the insurgent government in Benghazi. However, it appears that Gadhafi’s forces have damaged southern oilfields and pipelines feeding crude to Tobruk in order to forestall further export shipments by the insurgents.
Elsewhere continued protests and violence in Syria and Yemen continue worry the oil markets.
The weekly US stocks report showed a two-million-barrel increase in US crude inventories, about what was expected. Total commercial petroleum inventories remained about the same. Gasoline consumption in the US has been dropping slowly as prices increase.
Beijing increased interest rates, for the fourth time in the last six months, as well as retail gasoline and diesel prices by as much as 5.8 percent to compensate for the rising cost of imported crude. The Chinese have implemented a program that allows retail fuel prices to be changed whenever crude costs move by more than 4 percent over 22 working days. NY oil has advanced 28 percent since mid-February when the unrest spread to Libya. The effects of the interest-rate and price changes on Chinese oil consumption remain to be seen. Consumption in January and February was higher than expected by many outside observers. The March figures should be released soon.
The Japanese have managed to plug the leak that was allowing radioactive water to drain in the ocean, but the crisis is far from over. The government is considering increasing the mandatory evacuation zone around the reactors from 12 to 19 miles. The next step is to pump 11,000 tons of radioactive water back into the ocean as there is no place to store it. In the meantime Korea and China are starting to worry about the amount of radioactive water escaping from the damaged reactors.