Prices and production
After reaching a high of nearly $54 early Monday, oil prices fell along with the equity markets and the expectation that the Wednesday US stockpile report would show another increase in the US crude inventory. Recently the American Petroleum Institute began issuing their weekly estimate of US stockpiles the night before the EIA weekly report when it would garner more attention. Tuesday evening the API reported a jump of 6.9 million barrels to the highest level in 19 years.
The API report drove prices down to a low of $47.37 in overnight trading. When the EIA’s weekly report on Wednesday showed that the US crude stockpile increased by only1.6 million barrels, the reaction sent the prices up to $51 a barrel, then closed them out at $49.38. Over the last four weeks the API has US crude stockpiles increasing by 19 million barrels while the EIA says they have increased by 9 million.
US demand over the last four weeks has averaged 18.9 million b/d, 4.4 percent lower than last year. Despite the discrepancy between the API and the EIA, US crude inventories are nearing their highest point in two decades. Demand for oil products does not seem likely to pick up during the second quarter which is normally a slow time for product demand.
The oil markets continue to follow the equity markets. Financial markets are being driven by shifting perceptions of the prospects for an economic recovery plus the perceived efficacy of the various government moves to stimulate the global economy.
OPEC officials continue to express satisfaction with prices holding around $50 a barrel. The status of the current OPEC production cut is still unclear. OPEC is unlikely to take further action in the immediate future unless oil prices fall into the $30s or lower.
Iranian radio is reporting huge new oil discoveries that contain “billions” of barrels – details to follow. This report may have more to do with Tehran’s presidential election than with oil.
With bondholders and unions balking at the concessions necessary to restructure the company and satisfy the government, GM appears to be making preparations for a managed bankruptcy. The company would prefer to restructure without the aid of the courts and there is still six weeks to go before he government imposed deadline. GM had been working towards a plan that would allow the company to break even with US car sales at 11 to 12 million vehicles a year. Recent sales figures and economic developments suggest that the company will need to break even with US sales below 10 million a year if it is to be viable.