Developments this week
Oil prices continued their slow recovery from the sharp decline in early August. On Wednesday Brent crude traded as high as $111.74 before closing at $110.71. In the past week, oil has recovered more than half the decline from the $117 level where it was trading prior to the S&P downgrade of US debt. NY gasoline futures briefly traded at $2.92 a gallon on Wednesday after an API report of a large unexpected drop in US gasoline inventories. After the official US stocks report showed a smaller drop in the US gasoline inventory of 3.5 million barrels, analysts concluded that the annual shift by refiners to increased distillate and less gasoline production had started to take place.
In the US, gasoline is now retailing for $3.58 a gallon or about 10 cents a gallon less than it was a month ago. Futures prices are now down about 20 cents a gallon from July levels, but have been moving up for the past week. The relief to consumers that was expected from lower gasoline prices is not turning out to be all that large.
US crude inventories rose by 4.2 million barrels last week, as deliveries from the US Strategic Petroleum Reserve to refiners have now reached 20 million barrels. Until these deliveries are over, anomalies in US stockpile figures can be expected.
Most of the week’s trading has been dominated by the multi-faceted EU sovereign debt crisis and the seemingly endless efforts to find a solution. The German and French economies did not do well in the second quarter, but the Japanese economy seems to be rebounding nicely from the tsunami and nuclear power disruptions.
Instability in the Middle East continues with a new wave of attacks across Iraq leaving some 60 dead. The insurgents in Libya appear to be closing in on the capitol, but analysts say it may be years before Libyan oil production returns to pre-uprising levels.
The Syrian situation continues to deteriorate with the Assad government facing an increasing array of foreign sanctions for its violent suppression of demonstrations. While this uprising has had little impact on Middle Eastern oil exports thus far, the US has called upon the international community to stop buying the 120,000 b/d Damascus has been exporting. Syria’s critical position in the midst of numerous regional confrontations, of course, is fraught with future threats to regional stability.
The Iranians are saying that India has found a way to get around the US and UN sanctions and pay most of the $5 billion it owed Iran for oil deliveries.