Prices and production
After climbing to a seven-week high of $78.61 last Friday on the possibility that hurricane Alex might threaten the oil fields, oil has fallen steadily this week to close at $75.63 on Wednesday. While Alex did become the first Atlantic June hurricane since 1995 and grew to a robust Category 3 storm, it turned to the west, making landfall in northern Mexico just south of the Rio Grande. While some 25 percent of Gulf production was shut down as a precaution, the storm did no damage to oil facilities in the Gulf. The Houston Ship Channel was closed due to the storm.
The receding storm threat was accompanied by a spate of bad economic news this week that helped send oil prices lower along with the equity markets. The weekly US stocks report on Wednesday showed higher-than-expected product inventories and weakening demand for fuel. Consumption declined 2.7 percent to 19 million b/d; gasoline consumption, however, rose by 2.4 percent to 9.46 million b/d, the highest since last August.
Elsewhere in the world, Iran remains defiant as France’s Total and Spain’s Respol moved to halt shipments of gasoline to Iran in compliance with the UN sanctions. Iran is moving to cut domestic gasoline consumption and build more refining capacity while insisting that the sanctions will not work as China and various independent oil traders around the world will continue to sell them all the gasoline they need.
A Bloomberg survey shows OPEC’s crude production fell from a 17 month high in June led by a decline in Nigerian production. The cartel’s production for the month was down by 122,000 b/d to 26.84 million b/d.
While hurricane Alex had little effect on oil production in the Gulf, it played havoc with efforts to contain the Gulf oil spill. Seven foot waves forced the smaller boats to cease clean up operations and forced BP to delay efforts to contain more of the leaking oil. The high waves overran containment barriers and pushed still more oil ashore in Louisiana, Mississippi, and Florida. Winds in the vicinity of the leaking well remained in the vicinity of 25 mph, well below the 46 mph threshold at which capturing oil and work on the relief wells would have to stop.
The only good news of the week was a report in the London Times that BP may be able to complete its first relief well in about two weeks which would be well ahead of schedule. BP is officially standing by its August timetable for completing the well. The Times reports that US Energy Secretary Chu plans to monitor the final piercing of the damaged well’s casing and the pumping of mud and cement into the well from BP’s command center in Houston.