Prices and production
Oil prices have moved up steadily this week on expectations that the recession is coming to a bottom. Crude settled yesterday at $56.30 a barrel, the highest close since last November. The oil market continues to move with the equity markets and not on the fundamentals of the oil industry.
This week’s stock report shows the US crude stockpile increasing for the ninth consecutive week, although the increase was only 600,000 barrels rather than the 2.1 million analysts had been expecting. Total commercial petroleum inventories, however, were up by 7.9 million barrels as refinery utilization increased by an unexpectedly large 2.6 percent. Distillate inventories increased by 2.4 million barrels as distillate demand is now down by 14 percent compared to last year. There is already talk of holding down refinery utilization this summer to prevent the distillate inventories which are well above normal from getting out of hand. Total US consumption of oil products is down by nearly 8 percent over the same four week period last year.
Moscow reported its oil production rose for the second consecutive month in April by 1.3 percent year over year to 9.81 million b/d. This comes as a surprise as Russian production had been falling slowly throughout 2008 and the first two months of 2009.
OPEC’s output was down only slightly in April. The Saudis are cutting back on drilling and plan to release 15 of their 130 rigs by the end of the year.
Venezuela is preparing to pass a law than would allow the nationalization of their oil service industry. As the PdVSA owes billions of dollars to the oil service companies, this move may be seen as a quick and cheap way to get out of some of the debt. What more nationalizations will do for Venezuelan oil production remains to be seen.
Chrysler’s bankruptcy judge has approved the government plan to sell/give the viable assets of the company to its unions, FIAT, and the US and Canadian governments over the objections of some of the bond holders. The plan could be approved as early as May 27th. If all goes smoothly and appellate courts don’t get in the way, the Chrysler bankruptcy may serve as a model or object lesson for recalcitrant GM stakeholders. GM’s reorganization is now less than four weeks away. Many observers believe that the Chrysler proceedings clearly violate the tenets of bankruptcy law by giving precedence to union interests over those of senior debt holders.
It is difficult to see just what these “reorganizations” will accomplish other than possibly reducing the size of the government subsidies that will be needed to keep the industry functioning in the next few years. All indications are that car sales are unlikely to rebound in the foreseeable future. The current reorganization plans, which are largely aimed at saving as many jobs as possible, are so leisurely that they are likely to become ensnared either in a much deeper recession or the next sales-killing spike in gasoline prices.