Developments this week
In volatile trading, oil prices have climbed a couple of dollars to close Wednesday at just over $100 in London and at $85.81 in New York. Gasoline futures in NY have held steady around $2.75 a gallon after having climbed by 30 cents a gallon since late June. Natural gas prices have been swinging wildly for the last two weeks as heat waves come and go across the US.
The weekly stocks report showed a 4.7 million drop in US crude stocks as refineries hit 92.7 percent of capacity, the highest since July 2007. This surge in refining cut the US crude inventory, but increased gasoline and distillate inventories by 2.8 and 3.1 million barrels respectively. Stockpiles at the Cushing, Okla. delivery point fell by 859,000 barrels, the largest percentage drop since January.
US demand for fuels remains weak. The EIA reports that total fuel use dropped by 1.1 percent during the last four weeks from last year. MasterCard reports that US gasoline consumption over the last two weeks was 4.1 percent lower than last year.
So far this week, the economic news has not been good with Chinese inflation rates falling so much that people are starting to talk about deflation. Beijing has already cut oil prices this week and is moving to stimulate the economy. Concern about developments in the Eurozone is increasing. Some are already saying that the situation is deteriorating so fast that bank runs and defaults cannot be stopped. The OECD is forecasting that the growing number of austerity measures being implemented will result in major increases in unemployment across the EU.
There was little news from the Middle East so far this week. The Syrian situation is about the same, but defections of key government supporters suggest the current state of affairs can’t last much longer. The Iranian Parliament is threatening to pass bills taxing oil shipments moving through the Straits of Hormuz in retaliation for the sanctions. Thus far Tehran has kept pumping at around 3 million b/d and has stored the oil it could not sell. It now appears as if there is so little storage capacity left, both on land and on tankers, that it will have to start shutting in production under the guise of “maintenance.” According to OPEC figures, Iraq produced more oil than Iran in June -- 2.98 million b/d vs. 2.96. This is the first time Iraq has exceeded Iran’s production since 1988. Iran still maintains it is producing about 4 million b/d.
Elsewhere the Norwegian government stepped in to halt the oil strike which could have taken 2 million b/d off the market: BP has pulled the plug on a $1.5 billion project to drill for oil off Alaska; and the oil ports in eastern Libya have resumed exporting following protests during last week’s elections.