Developments this week
The twists and turns of the European debt crisis continue to impact the oil markets, driving the dollar/euro ratio one way and then the other. NY oil closed on Wednesday at $98.14 a barrel, slightly above where it opened on Monday, and in London, Brent closed at $118.17. Uncertainty over the future of the US and European economies seems to be keeping a lid on prices in the face of the tightening supply situation. The next week or so is likely to be dominated by the US and European fiscal and debt debates.
The EIA reported that US crude stocks fell by 3.7 million barrels last week, the seventh straight weekly decline. Much of the decline was due to higher refining rates which hit 90.3 percent of capacity last week. US inventories of gasoline, distillates, and propane grew by 6.2 million barrels, leaving total US oil stocks 3 million barrels higher. US refineries will have to take in 30 million additional barrels from the US strategic stockpile over the next five weeks and are likely making room in their crude storage facilities.
Wholesale gasoline prices have crept up about 4 cents a gallon this week, but are still about 15 cents below the highs set in late April. The EIA reports that gasoline demand over the last four weeks is down about 2.2 percent from the same period last year.
Beijing reported that its apparent fuel demand increased about 7.2 percent in the first half which is about in line with its 9.5 percent GDP growth. Many are concerned that this demand will increase in the next few months due to the hot weather and electricity shortage.
The Saudis posted their “official” production numbers for May on the Joint Organization Data Initiative website. Riyadh says May production was 8.89 million b/d of which 6.84 million was exported. According to the post, exports were up by only 70,000 b/d over April, which is a long ways from making up for the 1.3 million b/d in lost Libyan exports. A Dow Jones survey has the Saudis pumping 9.5 million b/d in June; however much of the increase is believed to have gone for domestic consumption.
French and German officials are saying that a second release of crude from strategic stockpiles is highly unlikely.
Japan’s Nuclear Industry
With nuclear-contaminated beef reaching Japan’s retail markets, public sentiment is turning against restarting idled nuclear reactors. Last week Prime Minster Kan said that Japan should be a country that does not rely on nuclear energy. Only 18 of Japan’s 54 commercial reactors are currently running with the rest shut down for safety checks. Another five are scheduled to be turned off for inspection by the end of next month. If the idled reactors are not returned to service due to increasing opposition from local officials and the public, all 54 of Japan’s reactors could be off-line by spring eliminating about 30 percent of Japan’s electricity supply.
Some but not all of the loss could be made up through increased use of thermal plants. One estimate says that Japan will have to increase oil imports by 350,000 b/d to support increased use of the thermal plants.