Developments this week
After a few hours of euphoria over the settlement of the debt cap crisis on Monday which sent prices up a couple of dollars a barrel, oil prices have fallen sharply as bad economic news arrived from several fronts. By the close on Wednesday NY oil was down to $91.93 a barrel after briefly approaching $99 on Monday. London’s Brent crude which had been trading around $117-118 a barrel for the last two weeks briefly surged to $120.50 on Monday and then fell sharply to close on Wednesday at $113.23. The main price driver for oil prices has shifted to concerns about the US and EU economies.

The weekly US stocks report showed crude and gasoline inventories climbing by 950,000 and 1.7 million barrels respectively. The release of 30 million barrels of crude from the US’s strategic reserve to commercial stockpiles this summer will complicate tracking of the supply/demand balance. The increase in gasoline stocks sent futures prices tumbling in NY. Futures prices which had surged to nearly $3.15 a gallon on Monday closed on Wednesday at $2.93, a drop of nearly 23 cents in three days. Whether this decrease will be reflected at the pump anytime soon is problematical.

The Chinese government announced that it expects its crude refining to average 9.24 million b/d in 2011 or an increase of 8.5 percent over last year. Despite indications that China’s economy is slowing under the weight of belt tightening and lower exports, oil consumption is expected to continue creeping up during the next five months. Despite recent increases in hydro power production and more coal mining, the country is reported to be suffering a shortfall of 30-40 gigawatts of electric power which is an upward revision from the previous forecast. The shortfall will shrink to 25-30 gigawatts in the winter when the demand for air conditioning falls away. Rationing is expected to begin in 10 regions sometime in the next few weeks.

The situation in Syria continues to deteriorate with the government seemingly intent on suppressing the uprising through military force. Except for an occasional bombing of a pipeline, the situation as yet has had little impact on Middle Eastern oil exports. The Israelis have decided to build a floating LNG facility so that they can import the natural gas that is no longer coming from Egypt.

Baghdad is suffering from a serious heat wave with temperatures reaching an all-time high of 124 degrees F. In southern Iraq, the temperature got to 126 degrees – another record. As the decision point on a US pull out of Iraq approaches, the violence seems to be increasing as Shiites militias are trying to pressure Washington to leave the country entirely. The Chinese press, however, is reporting that Prime Minister al-Maliki has the go-ahead from his colleagues to ask the US to retain a small residual force in the country to maintain stability.

Japan’s utilization of its nuclear generating facilities fell to 33.9 percent in July as compared to 70 percent which is normal for the month. Local governments remain reluctant to authorize the restarting of those plants that were shut down for routine maintenance.