Developments this week
Oil prices rebounded on Monday and Tuesday after last week’s $15 a barrel plunge, and then fell again on Wednesday after the US stocks report showed an unexpected rise in US gasoline inventories and a larger-than-expected increase in crude stocks. NY crude which had been trading around $114 a barrel at the beginning of last week fell to $95 last Thursday. It rebounded this week to $104 and then fell to settle at $98.21. London crude took a similar trip starting at $126 a barrel last week, falling to $105, rebounding to $118 and then settling at $113.
The volatility this week was primarily caused by concerns that flooding on the Mississippi will shut down some or all of the 11 oil refineries located on its banks. The threat to the refineries remains as high water is not expected to reach the vicinity of the refineries until next week. In the meantime, a 1.3 million barrel increase in gasoline stocks, the first increase in 12 weeks, was enough to send NY gasoline futures down nearly 40 cents a gallon on Wednesday taking crude prices down too.
The weekly US stocks report also showed that demand for gasoline is starting to falter as prices approach or surpass $4 a gallon. US consumption dropped 1.3 percent last week to 8.8 million b/d, increasing concerns that rising unemployment and high gasoline prices will curtail discretionary driving this summer. A weaker euro and concerns about continuing inflation in China contributed to the drop in oil prices.
In Libya, increasing NATO airstrikes appear to be wearing down forces loyal to the Gadhafi government and rebel forces are starting to make gains. This raises the possibility that some oil could start being exported from insurgent-held ports in coming months. In Tripoli lines at gas stations are now miles long and nearly all economic activity has come to a halt.
A Platts survey shows OPEC oil production in April fell by 344,000 b/d from its March production. Platts points out that this drop in OPEC’s production alone is enough to account for the recent run-up in oil prices without considering the effects of speculation.
In China, April crude imports rose by 3 percent over March and 1.3 percent over April of 2010 as factories increased their demand for oil. Coal and the consequent electricity shortages suggest that the demand for imported oil will be increasing.
In Japan, Chuba electric power bowed to the government request and will shut down the Hamaoka nuclear power station which is located on the coast south of Tokyo and is highly vulnerable to being swamped by a tsunami. Chuba supplies electricity to many important manufacturers including Toyota. The loss of this nuclear power station likely will result in even larger increases in imports of fossil fuels.
A big battle is shaping up in Washington as the Senate Democrats push to end tax breaks for the big oil companies which are posting record profits.