Developments this week
NY and London oil prices pulled back this week after increasing steadily for nearly a month. NY oil which opened on Monday just below $113 a barrel closed on Wednesday just above $107. In London, Brent crude which closed last Friday at $126.65 closed on Wednesday at $122.80. Profit taking coupled with the lack of any new developments in the various Middle East crises was a reason for the move. High oil prices and the economic consequences of Japan’s nuclear crisis are increasing concerns that demand for oil may be falling. The IMF has cut growth forecasts for the US and Japan and the IEA along with Goldman Sachs warned that high oil prices are beginning to reduce demand.

Oil and gasoline prices rose Wednesday afternoon after the EIA’s weekly stocks report showed US gasoline supplies falling by 7 million barrels – the largest one-week drop in the last 12 years. Analysts had been predicting a 1 million barrel drop. As a result of the report, gasoline prices rose by nearly 8 cents a gallon on Wednesday and are now just below the recent high set last Friday. US crude inventories were up by 1.6 million barrels on lower refinery utilization and stocks at Cushing Okla. rose to 41.9 million barrels, the highest level since record keeping began in 2004.

MasterCard reports that Americans are cutting back on gasoline purchases as nationwide prices now are in the vicinity of $3.90 a gallon. Prior to the recent decline, gasoline sales in the US had been increasing for the last two months.

Japan’s problems continue to grow with the government reporting that the economic impact of the earthquake/nuclear crisis will be worse than first feared. Power shortages continue to disrupt factory production and global supply chains. Tokyo now puts its nuclear calamity on a par with Chernobyl and says it will be many months before the situation is stable. Japanese oil imports, however, are starting to increase in the wake of the devastation. Bookings of tankers bound for Japan have increased by 59 percent above pre-crisis levels suggesting that increased Japanese demand for oil will soon be an important factor in world prices.

The Oil Market Report
In its monthly Oil Market Report the International Energy Agency continues to hold that the demand for oil will increase by 1.4 million b/d during 2011 despite the high prices are threatening to lower demand. The Agency cites increased consumption in Japan to deal with reconstruction and the nuclear outages as sufficient to compensate for reduced demand elsewhere.

The IEA reports also says that OPEC crude production was down by 890,000 b/d in March due to the drop in Libyan output and that total global production was down by 700,000 b/d. This implies that Saudi Arabia increased its production by less than previously believed and likely produced less than 9 million b/d in March.

The Agency said that global oil production in March was 600,000 barrels lower than what it believes will be the average daily consumption in 2011. Unless output increases, OECD inventories will sink to five year lows by December.