Developments this week
Oil prices have been relatively stable so far this week as European leaders continue their endless meetings in an effort to forestall a collapse of the Eurozone. While many observers believe the situation is beyond control, President Sarkozy and PM Merkel must continue to explore every possible path for as long as possible to avoid being blamed for whatever is to happen to the EU. Efforts seem to be focusing on a new EU treaty as the only permanent solution to the problem, but this may be impossible to achieve given the urgency of the situation.
The US stocks report was rather bearish this week with crude, gasoline and distillate stocks all increasing. Some of this rise has more to do with the shipping schedules which saw 1.5 million more barrels arrive on US shores last week than the week before. Considering that a larger than usual share of US petroleum products are now being exported, weekly US stocks reports would seem to be of minor importance as compared with the troubles of the Eurozone and the confrontation with Iran. NY oil closed on Wednesday at $100.49, a dollar or so below the Monday opening, and London closed at $109.53, holding the NY-London spread well below $10 a barrel.
The Iranian sanctions crisis continues to bubble along with the EU still considering banning the importation of Iran’s oil and Tehran still warning of the catastrophe that would ensue. The EU imports roughly 500,000 b/d of the 2.6 million that Iran exports. Given that Libyan production is coming back rapidly and could hit 1 million b/d by the end of the month, it would seem that the EU could make up for the loss of Iran’s oil. The Saudi’s are saying that their production of crude and condensates are now over 10 million b/d – the highest in 30 years.
The problem is that it is the economically weaker southern European states – Italy, Spain, and Greece – that would be hurt the worst by higher prieces. Then there is the question of whether Tehran’s oil earnings would really be hurt by the embargo or would the oil just be sold elsewhere.
There are reports that Beijing’s exports are slipping fast so that the outlook for China’s economy and oil consumption next year is not as good as a few months back. A report with the details is due on Saturday. The Asian Development Bank is forecasting that the Chinese economy will grow by only 8.8 percent next year – practically a depression by recent Chinese standards.
Analysts are saying that Brent crude will drop by $5 a barrel if the EU does not come up with a convincing plan to save the Union at Friday’s summit. They are also forecasting that Brent will drop by $20 a barrel should the Eurozone be forced to break up. This sounds rather mild considering the turmoil that many believe will occur as European countries reestablish national currencies and establish proper exchange rates.
Overriding all this is still the Middle East where the Syrian situation continues to deteriorate and tensions mount over the Iranian situation.
In the meantime, carbon emissions last year jumped by 5.9 percent --- the largest amount ever recorded. If this keeps up, all the rest may not matter.