Developments this week
With little news about the various Middle Eastern problems this week, the markets reacted sharply to the weekly stocks report which showed a 7.1 million barrel increase in US crude stocks. NY oil fell by nearly $2 a barrel to close at $105.41, while London oil was down by $1.10 to close at $124.16 a barrel. Reports that Washington along with London and Paris were considering releasing oil from strategic stockpiles at some undefined date in the future gave impetus to the move. US imports last week were about 600,000 b/d higher than the recent average – likely due to weather delays the week before.
NY gasoline futures were down by less than one cent a gallon, however, as the national average retail price for gasoline moved above $3.90. US gasoline stocks fell by 3.5 million barrels last week as refiners cleared out stocks of winter gasoline in preparation for the production of summer blends.
The EIA is still reporting that US gasoline consumption is down by 6.1 percent over the last four weeks as compared with last year. This number remains suspect as the EIA now says that US consumption of petroleum products last year was lower than reported due to higher-than-normal exports. MasterCard, which counts retail sales of gasoline directly at the pump, says that US gasoline consumption last week was 7 percent lower than the same week last year. This report adds credence to the idea that $4 gasoline is indeed cutting into demand this spring and the continuing optimism concerning an economic recovery may be premature.
There has been a lot of news out of Washington this week. The House is holding hearings on legislation that would ban releases from the US Strategic Petroleum Reserve unless the administration took steps to increase domestic production by freeing up more areas for drilling. The Senate is debating a bill to strip billions of dollars’ worth of oil and gas subsidies and direct the money towards renewables. The EPA finally announced the first greenhouse gas limits on power plants which would in effect end the construction of new conventional coal-fired electric plants in the US.
The pipeline companies have come up with a new plan to route oil flow from Canada through Flanagan, Illinois and Cushing, Okla. to the gulf coast. This would be accomplished by increasing the capacity of existing pipelines and adding new ones. As the revised system would use existing pipeline capacity across the US border, the US State Department would not become involved and the Keystone proposal would become moot.
Trouble is brewing in the UK as tank drivers are poised to strike, threatening country-wide fuel shortages. In addition a gas well in the North Sea has sprung a large leak, forcing the evacuation of several platforms and the shutting down of production. The well is a deep one involving very high gas pressures so that it may take many months to bring under control.