Developments this week
Oil prices fell after it became apparent that the upheavals in Egypt were not an immediate threat to oil shipments through the Suez Canal or the Sumed pipeline. After touching a high of nearly $93 a barrel last week, NY prices have fallen to close at $86.71 on Wednesday. In London, Brent crude continued to climb this week, closing on Wednesday at $101.92 a barrel, a record $15.11 a barrel above NY crude. Concerns about the ongoing troubles in Egypt which seem to have no end in sight were responsible for the increase. Daily exports of the four North Sea crudes that comprise the Brent contract are scheduled to drop by 7 percent next month to 1.3 million b/d.
The weekly stocks report showed US crude inventories increasing by 1.9 million barrels. Although US gasoline stockpiles grew to a 20-year high of 241 million barrels, gasoline futures in NY rose, settling at $2.52 a gallon after several major US refineries reported being down for maintenance.
The situation at the NYMEX delivery point in Cushing, Okla. continues to roil the oil markets. The inventory there recently set a record high. The situation is being exacerbated by the opening of a new pipeline that will deliver crude from the Canadian tar sands to Cushing. The recent snows in the Midwest have interrupted shipments by road.
A combination of low demand in the US and continuing inventory buildups is keeping NY futures prices at the current record discount to crude.
The publication by the Guardian of US State Department cables casting doubts on the Saudi’s ability to significantly increase oil production is causing a stir in peak oil circles. Without a significant increase in sustained Saudi oil production, the global oil industry is unlikely to produce sufficient oil to cover the demand that is projected to develop in the next year or two. Although there is little new in the cables for those that have been following the details of Saudi oil production, the fact that the US embassy in Riyadh has warned US government officials that the Saudis may not be able to increase production is significant. As recently as last week, the Saudi Oil Minister reiterated that his country indeed has 4 million b/d of spare capacity.