Prices and production
In the wake of OPEC’s decision to hold production steady for the time being, prices followed the equity markets up on Monday and Tuesday and then down on Wednesday following the US Stocks report. Prices dropped below $44 a barrel on Monday, climbed to nearly $50 on Tuesday, and then settled at $48.16 on Wednesday. The decision by the US Federal Reserve to start purchasing long-term US Government securities Wednesday afternoon sent oil higher overnight as the dollar fell and hopes for a faster economic recovery increased.
The stocks report showed total US commercial inventories climbing by 3.1 million barrels last week. US oil consumption continues to trend down slowly this year, while US gasoline demand is holding steady at about 9 million b/d. The increase in gasoline stocks seems to have more to do with refinery utilization and the size of the weekly gasoline import than with falling demand.
Other than a small price drop on Monday, there has been little reaction to the OPEC production decision on Sunday. The Saudi Oil Minister reiterated that oil needs to be at $60-75 a barrel in order to finance necessary drilling. He also warned about making a “premature” shift to renewable fuels on the grounds that the money would be better spent finding and producing more oil.
Russia has decided not to join OPEC but will assign a permanent representative to the OPEC Secretariat in Vienna to coordinate policies.
Chevron has acknowledged that yet another pipeline was bombed in Nigeria over the weekend. A new Reuter’s compilation of oil shut in by militant attacks put the total at 606,000 b/d not counting minor blockages. As the worldwide demand for oil slows, the international oil companies are becoming less enchanted with trying to produce oil from the Niger Delta. The unending militant attacks on facilities, the frequent kidnapping of oil workers for ransom, the inability of the government to come up with its share of the money for “joint projects,” and a new government plan to reorganize the industry are taking a toll.
Shell, which already has over 500,000 b/d shut in by the militants, is reducing staff, cutting back on investment, and is said to have plans to evacuate its personnel from the Delta if the situation gets any worse.