Developments this week
After falling by almost $10 a barrel last week, NY oil traded around $94 a barrel this week, closing on Wednesday at $94.61. In London Brent crude traded around $111, but jumped $3.29 a barrel on Wednesday to close at $114.21. Most of the week was dominated by the machinations surrounding the Greek debt crisis with prices moving along with the latest announcements or rumors. As much of the economic news from Europe was worse than the news from the US during the last ten days, the dollar strengthened and oil prices declined. On Wednesday, however, the news about Greece was better sending oil prices higher.
The US weekly stocks report came as a bit of a surprise by showing a decline in US crude inventories of 1.7 million barrels last week. This was the third weekly decline in a row and came as US refineries ran at the highest level in 10 months. The inventory news was undercut by a statement from the Federal Reserve saying that the US recovery was going “somewhat more slowly” than expected. Concerns about the US economy are among the factors keeping US crude trading some $20 a barrel below London crude.
US gasoline stocks also took an unexpected dip of 500,000 barrels last week. Analysts had been expecting an 800,000 barrel increase. The EIA also reported that US gasoline consumption averaged 9.3 million barrels over the last month, up by nearly 1 percent over last year despite gasoline prices averaging a dollar or so a gallon higher. This news sent NY gasoline futures up by 9 cents a gallon to close at $2.97 a gallon. The government report was reinforced by MasterCard who reported gasoline demand last week was 9.34 million b/d, the highest consumption since Memorial Day.
The news out of China this week has been mostly about floods as heavy rains, including a major typhoon, continue to deluge southern China. In Shanghai the authorities have announced that power rationing will be imposed this summer whenever temperatures rise above 37° C (98° F). As the financial capital of China, uncontrolled blackouts in Shanghai could be very costly to the country’s economy.
While China remained a net exporter of fuel in May, exports were only 50,000 tons greater than imports, which remained flat, as compared to 90,000 tons in April. China suspended diesel exports last month so there would be enough fuel for emergency power generators this summer.
In Bahrain, the government sentenced eight Shia activists who had led the demonstrations in February and March to life in prison. This action will undoubtedly lead to still more troubles for the Sunni-ruled kingdom and its Saudi allies. The IEA says there are indications that Saudi oil production is increasing as promised, but that it will be several months before the increased shipments will reach markets and the effects of the increased production on the world markets can be assessed.