Developments this week
Oil prices fell Monday and Tuesday on word that Iran had agreed to negotiations over its nuclear program and bad economic news from both sides of the Atlantic. Brent crude fell $3 a barrel and stabilized on Wednesday to close at $120.18 down nearly $6 a barrel from where it had been trading in March and early April. NY futures fell on Tuesday along with the equity markets, but then rebounded on Wednesday to close at $102.70 after the EIA reported unexpected drawdowns of 4.3 million barrels for gasoline stocks and 4 million for distillates. US distillates stocks are now down to the lowest level since December 2008.
US gasoline futures rebounded after the report on Wednesday after having decreased by 15 cents a gallon since early April. This decline and a 1 cent drop in average US retail prices have some journalists saying the 2012 price spike is over and lower gasoline prices are ahead. Others are warning that the Northeast refinery closing crisis is still with us so that oil product supplies could be much tighter in the second half.
The demand for oil products in the US over the last month was down by about 4.3 percent. This agrees with MasterCard reports that over the last month US gasoline consumption is down by 4.7 percent as compared with 2011 -- last week, however, was down by only 2.4 percent.
Natural gas futures continued to fall this week trading below $2 per million BTUs for the first time since January 2002. With low prices causing massive losses among gas drillers, the number of rigs drilling for gas-only has fall by 27 percent in the past year as the rigs are shifted to drilling for oil or gas containing large amounts of natural gas liquids. Unless production slows markedly this summer, the US could run out of space to store natural gas by October.
China reported on Tuesday that its crude imports in March were 5.57 million b/d, the third highest monthly imports on record and 8.7 percent above March 2011. For the 1st quarter China’s imports were 11 percent above the same quarter in 2011. Although China’s economy is forecast to grow by 8.5 percent, the surge in oil imports is attributed to Beijing’s efforts to fill its new constructed strategic petroleum reserve depots. The current rate of imports is believed to be more than China’s refineries can process.
Tensions in the Middle East are clearly behind Beijing’s efforts to build a strategic reserve as quickly as possible. Over the last decade, China has become increasing dependent on Middle Eastern oil which is an important reason why Beijing continues to stand behind Libya and Syria in the current crisis. The loss of oil from Sudan and Libya in the past year has not helped Beijing’s situation nor have the sanctions on Iranian oil which has forced many large importers to turn elsewhere for their oil. Iran supplied 11 percent of China’s oil imports in 2011. Beijing clearly does not want to become too dependent on Iran, whose exports would be the first to disappear should hostilities break out or some kind of embargo be imposed.
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