Developments this week
Oil prices fell to a two-month low on Wednesday after the weekly US stocks report showed that US crude production has reached its highest level in 15 years, and US fuel consumption remains weak. NY crude fell some $3.75 a barrel to close at $88.14. London crude fell $3.40 to close at $108.17, the lowest close since early August. Oil prices had been trending down anyway this week as attention shifted from the Middle East to the deteriorating economic situation in Europe.
The weekly stocks report showed US crude inventories undergoing an unexpected drop of nearly 500,000 barrels last week largely because of lower crude imports of only 8.1 million b/d as compared to an average of 8.8 million this year. Oil consumption in the US continues to be lower than last year. The EIA reported that the demand for gasoline for the last four weeks was down 1.5 percent from last year and overall fuel consumption was down by 3.3 percent largely due to a 4.5 percent drop in the demand for distillates.
MasterCard confirmed the EIA consumption numbers saying that retail gasoline consumption in the last two weeks was down by about 1 percent from last year. The average retail price of gasoline has fallen by 6 cents a gallon in the past two weeks after having risen by 53 cents in the previous 11 weeks. Further gasoline price decreases are likely soon as NY gasoline futures fell by nearly 8 cents a gallon on Wednesday.
A series of refinery maintenance outages and mishaps have driven wholesale gasoline prices in California to record highs. This is forcing some independent gas station operators to close rather than purchase gasoline for resale at prices ranging up to $4.90 a gallon. Spot gasoline prices in California have climbed by 70 cents a gallon during the past week relative to the NY futures market prices. The shortages, however, are not expected to last long as the refineries are expected to start coming back into service soon.
Natural gas prices have been volatile this week, climbing by nearly 20 cents per million BTUs during Monday and Tuesday on forecasts of colder temperatures across the US and then falling on Wednesday to close at $3.39.
The economic news continues to be mostly bad with manufacturing slowing in China, economic relations between China and Japan deteriorating because of the islands dispute, and Spain teetering on the brink of asking for a bailout. Madrid and Athens are making drastic budget cuts in hopes of making themselves “loan worthy” and unemployment keeps rising in the EU.
Iran’s currency collapsed against the dollar this week as Western sanctions take hold. Shops in the main bazaar in Tehran closed on Wednesday as shop keepers were unable to keep track of changing currency values. Police were sent in to force the shops to remain open and close down black market money changers. Currency exchanges were closed by government order. Riot police clashed with demonstrators protesting the rampant inflation which is putting food out of reach for some. Anti-government feeling is rising as many believe the government is mismanaging the economy in light of the Western sanctions.
Iraq, which managed to increase its September oil exports to a two-decade high of 2.6 million barrels, has agreed to pay some of the money it owes to foreign oil companies pumping Kurdish crude without Baghdad’s permission.
In Brazil, a court partially lifted a ban on Transocean’s drilling in Brazilian waters which had been banned by a lower court in a dispute over an oil spill. The judge seems to have bought the argument that too much banning of drilling would only result in expensive delays in exploiting Brazil’s highly touted offshore oil fields.