Developments this week
A combination of factors sent oil prices lower on Wednesday. After trading in the vicinity of $105 a barrel earlier in the week, NY oil closed at $101.47 after the weekly stocks report showed a build of 9.0 million barrels – nearly five times as much as analysts had been expecting. The unexpected increase in stocks was due largely to a surge in crude imports which were up by 500,000 b/d from the preceding week. London oil closed at $122.98 after trading as high as $126 earlier in the week and NY gasoline futures fell by six cents a gallon during the day. The spread between NY and London oil prices widened to $20.87, the largest since last October.
The price slide was helped by hints that the Federal Reserve is not planning to resume quantitative easing (money printing) in the immediate future and some-lower-than-expected economic numbers. Spain’s bond auction on Wednesday did not go well, adding to concerns that the EU may be in for another round of economic problems and lower demand for oil.
The EIA reported that US domestic oil production rose above six million b/d last week, up 7.3 percent from this time last year. Part of the increase, however, comes from a new methodology in calculating output which led to larger numbers. Implied demand for oil products in the US last week was down 4.7 percent from last year, with gasoline down 3.8 percent.
This missing factor in all this is the Iranian confrontation which has been unusually quiet of late after months of threats and bombast from both sides. The Group of Six is due to meet with the Iranians late next week. The success or failure of these meetings should tell us much about where oil prices are headed in the immediate future.
The debate continues as to whether President Obama will release oil from the Strategic Petroleum Reserve in conjunction with France and the UK in hopes of averting a further gasoline price spike before the French and UK presidential elections. Although most observers believe that releasing oil will have little more than a short lived impact on prices, stories that Washington and the major European powers are actively considering such a release continue to make it into the press.
The dispute between Baghdad and the semi-autonomous province of Kurdistan continues to become more rancorous with the Kurds threatening to halt exports unless Baghdad, which collects the revenue for the oil, shares some of it with them.
The litigation over Chevron’s rather insignificant oil spills off Brazil continues and has led to the filing of a second $11 billion suit against the company and Transocean in less than five months. The suits have been filed by a local prosecutor who has also filed criminal charges. If this keeps up, the Brazilians are going to have trouble finding foreign companies willing to do business in Brazilian waters.