Developments this week
NY oil prices opened and closed around $112 a barrel on Monday and Tuesday and then moved up on Wednesday to settle at $112.76 as dollar weakness continued and US gasoline stocks dropped by an unexpected 2.5 million barrels last week. Gasoline futures in NY jumped by 6.2 cents a gallon to close at $3.41, the highest settlement price since July 14th 2008. US demand for gasoline rose slightly over the last four weeks, but is running about 1.6 percent lower than during the same four weeks last year. The drop in US stockpiles of gasoline and diesel of 4.3 million barrels last week was likely due to increased US exports which were averaging 2.3 million b/d in late March and early April. In London, Brent closed at $125.13.
The announcement by the Federal Reserve on Wednesday that it will continue to stimulate growth through low interest rates sent the dollar lower which in turn supports oil prices. The various uprisings going on across the Middle East continue to support the oil markets.
US demand for oil products remains around 19.3 million b/d up 3.3 percent over last year. Speculation continues as to just how high US gasoline and diesel prices will have to rise before there is a substantial drop in consumer demand. At the current rate of increase the old record average US gasoline price of $4.11 a gallon, set in July of 2008, seems likely to fall in the near future. Some analysts already are talking about $5 and even $6 gasoline, but conventional wisdom has demand collapsing long before such heights are reached.
Concern is rising that global oil consumption may now be running about 1 million b/d above production due to the stoppage of Libyan exports and the recently announced Saudi production cutback. The difference is thought to be coming out of OECD inventories. If this is indeed the case, the oil markets are in a precarious position with higher prices ahead as OPEC seems unwilling to increase production.
It appears that gasoline and diesel shortages are occurring in parts of Russia as price controls are leading to increasing amounts of these fuels being exported.
Venezuelan President Chavez is attempting to cash in on high oil prices by imposing a 95 percent tax on any oil revenues that exceed $100 a barrel.
Reports of coal and power shortages are starting to crop up across China as the country’s energy chief, Liu Tienan, warns of a summer power shortage. Liu said, “owing to excessively heavy demand, even with production and supply growth in the double digits, supplies of coal, power and oil in some regions are still tightening, and future trends give no grounds for optimism." Demand for electricity is said to up for 11 percent this year and by 15 percent in some industrial provinces.
China’s coal industry, which has been growing at 10 percent a year for more than a decade is thought to be producing at a rate of 3.2 billion tons a year. This rate of growth for a 3 billion ton per year industry has got to slow or even stop somewhere, even in China. In the past shortfalls in energy production have been made up by increasing imports and pressure on world oil and coal prices.