Developments this week
Oil prices rose this week as attention shifted from the EU, where things have been relatively quiet, to the increasing tensions in the Middle East. The weekly US stocks report, which showed a 10.6 million barrel drop in the crude inventory, came as a surprise to analysts, who had been predicting a 2 million barrel drop, and to the API which had been predicting 4.6 million. Some of the decline was due to fog along the Gulf Coast last week which slowed imports to 7.5 million b/d, the lowest in over three years. Total US commercial petroleum stocks fell by 18.2 million barrels last week. As weekly movements are impacted by weather and shipping schedules, it will be several weeks before we can tell if this drop is an aberration or is due to tightening global oil markets.
NY oil closed Wednesday at $98.67 after touching $99.25 during the day and London closed at $107.71. NY gasoline futures have risen by nearly 13 cents a gallon so far this week. In general oil prices have retraced most of losses that occurred last week when concerns about the Eurozone were in the ascendency.
Concerns about the EU are down this week as a Spanish bond auction went well and the European Central Bank loaned out a record-breaking $645 billion in three year loans to EU banks. While this may help liquidity for a while, the loan will have little impact on the underlying sovereign debt crisis, but the action was good for market morale, resulting in a stronger euro and higher oil prices.
Despite much spin about an increase in housing starts sparking a US recovery (it was mostly apartments), the National Association of Realtors admitted that 3.5 million of the home sales they reported during the last 4 years never took place. Sales in the US since 2007 were 14 percent lower than the Association had been saying. In the northeast, the over-reporting was nearly 31 percent too high. US gasoline consumption over the last 4 weeks was 4.7 percent lower than last year – a better gauge of the state of the economy.
In the Middle East, the fighting in Syria is getting worse; the Sunni-Shiite coalition in Iraq is coming unstuck with the Sunni Vice President sheltering in Kurdistan to avoid arrest for treason. US officials remain confident that this is not the beginning of a civil war in Iraq.
Efforts to stifle Iranian oil sales are underway with the EU still considering a ban on imports. The US and EU are working hard at making it difficult for Tehran to get paid for its oil and at slowing Iranian foreign trade as much as possible. The aim is to slow oil exports and other trade just enough to make serious trouble for the Iranians without sending oil prices through the roof. Iranian officials are starting to talk about the economic difficulties they are facing from the sanctions. The value of Iran’s currency has fallen by over 50 percent against the dollar in the last three months.
China’s apparent oil demand in November rose 2.6 percent year on year to 9.54 million b/d. Beijing is said to be making a major effort to replace its depleted diesel stocks and get its new strategic reserve tanks filled before something else happens in the Middle East.