Developments this week
Oil prices climbed about $3 a barrel on Tuesday and then fell on Wednesday after a batch of bad economic news was released concerning US employment, manufacturing, and housing. This news triggered the worst loss in the equity markets since last August. The week’s stocks report will be delayed until Thursday because of the holiday; however, analysts are expecting a drop in US crude inventories and the API is reporting a substantial increase. NY crude closed just above $100 a barrel and London crude at $114.53.
Tuesday’s price jump was largely due to the news that the EU hoped to work out a solution to the Greek debt situation by the end of the month – thereby sending the euro up taking oil prices along with it. The bad economic news on Wednesday, however, outweighed news of the dollar which continued to fall against the euro.
Preliminary reports say that OPEC oil production increased in May, but more definitive data will be available on June 16th when the IEA releases its monthly report.
The 590,000 b/d Keystone pipeline that runs from Alberta to Cushing, Okla. was shut down due to a leak and is not expected to reopen for several days. This may relieve some of the glut that has been building up at the Cushing storage facilities for the last few months and thereby suppressing the price of NY oil as compared to other markets.
The news from the automobile industry is also bad with motor vehicle sales in Japan falling by 38 percent and US auto sales suffered their first significant decline in 18 months.
The severe drought is continuing in the southern and central regions of the country. Some light showers were reported as helping the crop situation in the area, but it will take heavier rains to revive hydro power generation. Despite the widespread drought, the Chinese Agriculture Ministry says it is expecting a bumper crop this year.
Beijing moved to ease the power shortage by raising retail electricity rates for industrial users in 15 of the 31 provinces. With an electricity shortfall said to be approaching 40 or more gigawatts this summer something had to be done to ease the shortage. It is hoped that higher revenues will encourage thermal power producers to bring more generating stations back on line from “maintenance.”
China’s manufacturing index for May shows a slight decrease in manufacturing but remained stronger than analysts had expected. Given Beijing’s efforts to tamp down inflation and the beginnings of serious power shortages, manufacturing in China still seems to be doing well. This suggests that larger amounts of oil will be imported in coming months.