Prices and production
After trading above $54 a barrel late last week, oil fell below $48 on Wednesday and closed at $48.39. This week has brought a steady drum beat of bad economic news. The IMF is now forecasting that the global economy will contract by one percent in 2009. The OECD foresees unemployment in its member states reaching 10 percent in 2010. US unemployment is seen as increasing by 750,000 in March. On Thursday oil bounced back over $51 on hopes the G-20 summit would make progress.
Here and there comes a snippet of news that is touted as a sign of better times to come, but most of this falls into the category of “better-than-expected” or not falling as fast as the previous month. Overall nearly every aspect of the world and US economies continues to contract.
This week’s stocks report showed US crude inventories continuing to grow by 2.8 million barrels to a 15-year high and gasoline inventories increased by 2.2 million barrels in the face of an expected decline. Once again it was healthy gasoline imports that led to the surplus. US demand for oil products over the last four weeks was 18.9 million b/d — down 4.4 percent from last year and demand for gasoline averaged 9 million b/d – 0.3 percent lower than last year. The total demand number was the lowest since October, suggesting that demand, which had been looking better in recent months, is once again slipping.
The status of OPEC’s production cut remains murky with some sources reporting that the cartel is making progress towards the goal of cutting 4.2 million b/d and others suggesting they are stuck around 80 percent of that total. Some analysts are saying the demand for oil may be contracting so fast that for the time being OPEC does not have the ability to drive prices back to the levels they would like.
In the wake of the Obama administration’s rejection of GM’s and Chrysler’s reorganization plans, most observers are saying that some sort of bankruptcy for the firms is likely. Ford is wondering how it can compete if the courts remove GM’s indebtedness, cuts contract obligations and prunes unprofitable models while leaving the core of GM intact to continue selling cars.
Detroit’s situation was not helped by the March sales numbers which showed sales 37 percent lower than in March 2008. The automobile makers are optimistic that their new incentive programs which now average more than $3,100 a car will improve demand in coming months. Most observers are skeptical, given that employment and house prices continue to slip.
The only good news for Detroit is that gasoline prices seem likely to remain relatively low this summer – at least for now.