The week started amidst much gloom and doom, a carryover from four weeks of steady price declines during May. By Wednesday, however, market sentiment had turned around with NY oil rising a couple of dollars to close at $85 a barrel and London climbing back to close at nearly $101. The overriding concern driving the oil markets for the past month has been the future of Europe. This week, however, the Iranian nuclear situation has garnered more attention as Tehran appears to have returned to a hard line, saying it will never give up uranium enrichment and will not allow IAEA inspection of suspect nuclear weapons sites at this time.
The weekly US stocks report was a wash with little change in the US crude inventory. The stockpiles at Cushing, Okla. climbed by nearly 1 million barrels last week to an all-time high of 47.8 million barrels, despite the reversal of the seaway pipeline which is supposed to be draining oil away to Gulf Coast refineries.
US gasoline stocks grew by 3.3 million barrels and distillates by 2.3 million largely due to an increase in refining and weak demand. NY gasoline futures, which had been trading as low as $2.60 a gallon on Monday, closed at $2.69.
With economic growth slowing across most of the world, the prospect for lower oil demand is still the dominant theme in oil trading. Opinions vary as just where prices are going from here. After the recent 20 percent drop in prices, some think we are in for a period of retrenchment. Technical analysts, however, foresee further prices declines as numerous support levels have been broken.
It is clear that the Eurozone is approaching a crisis. With Greece moving towards default and borrowing costs reaching unaffordable levels in Spain and Italy, many think that some sort of collapse is imminent. Others say the situation is so serious that the EU will come together and form some sort of centralized fiscal management system that will save the day.
In the meantime, the EU is clearly moving towards an economic recession with industrial production falling everywhere and unemployment increasing. In the US, companies are warning that sales to EU countries are falling, indicating that the US’s economy likely will be seriously affected by whatever happens in the EU.
With Greece and Spain on the verge of fiscal collapse – tax payments in Greece are drying up and borrowing rates in Spain are no longer affordable -- it is becoming obvious that the EU must integrate and coordinate its fiscal policies much closer than ever before or sink into a serious economic depression. Such integration will not be easy to accomplish and many doubt that it will ever be achieved.
In Japan, a debate is raging over whether to start two of the 50 nuclear power reactors that have been shut down. The government favors restarting the reactors as the only way to keep the economy viable while much of the parliament is opposed.