Developments this week
So far this week, oil prices have cycled around $74 to $76 a barrel, closing on Wednesday at $74.41. Analysts, who had been expecting a 1.6 million barrel drop in US crude inventories last week due to the closure of the Enbridge pipeline from Canada, were surprised when first the API reported a 2.2 million barrel increase and then the EIA said there had been a 1 million barrel increase. Total commercial petroleum inventories grew by 3.3 million barrels last week.
Given that crude inventories are close to a 27 year high and the outlook for increasing economic growth is not good, most oil analysts are talking about further declines in oil prices. Some even talk of substantial declines.
Goldman Sachs, on the other hand, says world oil demand is up by 2.4 million b/d in August over last year and that rising demand in Asia is has led to a 600,000 b/d global supply deficit since May. This deficit is thought to be covered by selling off oil from floating storage. If this analysis is correct, Goldman foresees a substantial rise in energy prices over the next 12 months.
ARAMCO’s CEO told the World Petroleum Congress that Saudi Arabia had oil reserves for another 80 years of sustained production. ARAMCO expects to raise its current reserves of 260 billion barrels by another 100 billion and increase its recovery rate to 70 percent – twice the world average.
Unusually high water temperatures led to the formation of four major Atlantic hurricanes within an unprecedented 20 days in the last month. Although these hurricanes spun harmlessly into the North Atlantic, there are still 10 weeks left in the hurricane season.
Cairn Energy announced that its second well drilled off Greenland has found traces of oil and gas. The first well Cairn drilled was sealed last month after finding only non-commercial quantities of gas. The company expects to continue drilling exploratory wells off Greenland for several years.
Russia and China announced a plan to build a $5 billion refinery in China as talks on building a pipeline to supply Russian natural gas to the Chinese continue. Moscow apparently wants a piece of China’s refining business in return for selling oil and gas to Beijing.
The recriminations over the US and EU sanctions against selling gasoline to Iran continue. Tehran says it is now self-sufficient in gasoline while the US seems to believe the sanctions are working and will soon bring the Iranians to the negotiating table.