1. Hurricanes, OPEC and prices
In a surprise compromise, OPEC announced that it was going to cut its production by 500,000 b/d, at least unofficially, while keeping official targets in place. The move came after oil prices, which continued to fall this week, fell below $100 a barrel in London for the first time in months. A second surprise occurred when Russia’s Vice Premier showed up at the meeting at the head of a large delegation and proposed “extensive cooperation” between Russia and OPEC. The extent to which the pro-US Saudis and their allies will let Moscow use OPEC against US and EU interests has yet to be worked out.
The effects of hurricane Gustav and preparations for hurricane Ike were apparent in this week’s stocks report which showed that as of last Friday US oil refining was down by 1.8 million b/d from the previous week. Imports were down by 1.2 million barrels, due to closure of Gulf ports. Crude stocks dropped by 5.9 million barrels, gasoline stocks by 6.5 million barrels and distillate stocks by 1.2 million barrels last week.
The American Petroleum Institute, which also tracks stockpiles, is reporting that US crude inventories dropped by nearly 22 million barrels last week vs. the 5.9 reported by the EIA. Due to different methodologies used by the two organizations there is normally some discrepancy between the numbers, but this is unusually large. The API also says gasoline stocks were only down by 3 million barrels and distillate stocks were actually up by 3.5 million barrels.
The EIA says total gasoline stocks are now at 187.9 million barrels, which is well below average and getting closer to the point where shortages could occur. The Colonial and Plantation oil product pipelines that move from the Gulf Coast refineries to East Coast markets are operating at reduced rates. US demand for petroleum products is down by 3.8 percent compared to the previous four week period last year and gasoline demand is down by 2.1 percent.
So far the markets have not reacted significantly to the news from the OPEC meeting nor the US stockpiles and hurricane reports. Oil prices continue to fall.
2. IEA’s Monthly Oil Report
The Agency reports that world oil supply fell by 1 million b/d during August due to North Sea maintenance, the BTC pipeline outage and a 195,000 b/d drop in OPEC production. The IEA estimates that the two Gulf hurricanes will cut US crude refining by 1.4 million b/d during September. The economic downturn has prompted the Agency to lower its forecasts for global oil demand by 100,000 b/d to 86.8 million b/d during 2008 and 140,000 b/d to 87.6 million b/d during 2009. OECD stockpiles rose by an unseasonal 47 million barrels during July giving some credence to the claim of overproduction in the face of faltering demand.
The IEA is still forecasting that the demand for oil will increase by 800,000 b/d in 2008 and 900,000 b/d in 2009 due to a four percent increase in demand by non-OECD consumers such as China and India.