Peak oil notes - March 12

Prices and production
Oil prices continued last week’s rally and at one point approached $49 a barrel in the belief that OPEC will cut production again at their meeting next Sunday. Later on Monday prices began falling to a Wednesday close below $43 a barrel. OPEC continues to send mixed signals concerning another production cut. Some OPEC officials are predicting a 1 million b/d cut while others point out that production is still considerably above quota and that there should not be another cut until there is complete compliance. The Saudis have already notified Asian and US customers to expect steady or increased shipments in April thereby adding credence to the “no-cut” thesis.

The weekly stocks report was mixed, with crude inventories up by 700,000 barrels, gasoline inventories down by 3 million barrels and distillates up by 2.1 million. Total US oil product consumption is down by 2.1 percent as compared with last year, while preliminary gasoline consumption figures (which are usually revised downwards at a later date) show an increase of 1.6 percent over last year.

The EIA has released a new Short-Term Energy Outlook projecting that average world oil consumption will decline by 1.4 million b/d this year — 3 million b/d less than predicted in September. Some are beginning to question whether such a relatively mild decline of 1 or 2 million barrels a day with prices remaining around $40 a barrel is realistic in the face of increasing worldwide economic troubles. The New York Times reports that a growing body of observers believes that consumption could fall faster and further than currently expected and that prices could go as low as $20.

China
The most interesting development so far this week was an unexpectedly large drop of 25.7 percent in Beijing’s exports. This drop was accompanied by reports that China’s crude imports are down by 13 percent in January and February simply because there is no longer anyplace in China to store the crude. Beijing is reported to have filled all four of its new strategic reserve storage sites to the brim and is contemplating using tankers to store crude while it is still available at relatively low prices. The IEA is still expecting a small increase in Chinese oil consumption this year, but this could change when new forecasts are issued later this week.