Developments this week
NY Oil traded around $91 a barrel on Monday and then began to climb on Tuesday on expectations that the Greek debt crisis would soon be settled and that US stockpiles would fall for the 4th straight week. When the Greek parliament voted to accept the EU’s austerity measures on Wednesday and the EIA reported that US crude stocks had fallen last week by a more-than-expected 4.4 million barrels, crude rallied. NY crude rose by $1.88 a barrel to settle at $94.77 and London crude rose by $3.62 a barrel to close at $112.40.

This week’s news, which included a falling dollar, took oil prices above where they were last week before the IEA announced that it was going to release 60 million barrels from the strategic reserve. The US government has announced plans for auctioning off the 30 million barrels it plans to sell from the Strategic Petroleum Reserve. The crude to be auctioned will have a base price of $112.79 a barrel, will be delivered to purchasers between August 1 and 31, and cannot be resold overseas without government permission. As of now, it does not appear that selling off 16 hours-worth of oil from strategic reserves is going to be a particularly effective way of controlling prices should the markets tighten later this summer.

An unnamed official in the Saudi Oil Ministry said the kingdom will proceed with plans to increase oil output no matter what the IEA does with its reserves. The Saudis expect that demand from oil will increase by 1.2-1.5 million b/d next year and they will be ready to supply this additional amount if necessary.

The EIA also reported that US gasoline stocks fell by 1.4 million barrels last week. This news sent gasoline futures in NY up by 12 cents to close at $3 a gallon. US gasoline consumption in recent weeks has been running fairly close to last year’s considering the large increases in oil prices in the last 12 months. Some believe the 40 cent a gallon drop in average US prices during the last two months will lead to higher demand this summer.

The shortages of electricity, natural gas, or gasoline that have been springing up around the world seem to be growing worse with a number of countries joining or moving up the shortages list. This week we have reports of new or significantly increased shortages in Tanzania, Iran, Mongolia, Argentina, Senegal, Nepal and Botswana. The ongoing problems in Pakistan, Nigeria, and Japan seem to be getting slowly worse.

The Iranians apparently have offered to sell electricity to Pakistan at the same time a report has surfaced claiming that 15 of Tehran’s power stations are about to close due to a lack of natural gas supplies. Moscow has cut the power it supplies to Belarus for failure to pay electric bills.

The news from China this week includes a report that Beijing has held its first shale gas block auction. The Chinese seem to believe shale gas will play a big part in their energy future. Ironically Beijing’s auction comes at the same time as a New York Times story, citing industry insiders, that casts doubts on all the hype surrounding shale gas.