Developments this week
The EU’s debt crisis continues to dominate the oil markets. After falling $6 a barrel late last week, NY oil traded around $80 a barrel and London around $104. Tuesday a burst of optimism over the possibility of an EU settlement sent prices upwards for the biggest gain in four months. By Wednesday, however, the optimism had faded, resulting in oil falling to a close of $81.21 in NY and $103.81 in London. Reports continue to circulate that German Chancellor Merkel does not have the votes in parliament to expand the euro-zone bailout fund and prevent a Greek default.
Behind the day-to-day developments, there seems to be a growing pessimism that little can be done to prevent a major fiscal crisis from engulfing the EU. For now attention is being focused on Germany which is being asked to bear the brunt of the Greek bailout. Beyond Greece, however, are the problems in Italy and Spain which have much larger economies and would be much more difficult to bail out. Short of major supply disruptions in the Middle East, the EU’s sovereign debt crisis is likely to dominate the oil markets for the foreseeable future.
A 1.4 million b/d jump in US crude imports over the previous week resulted in an increase in stockpiles of 1.9 million barrels. This development contributed to Wednesday’s decline. Conoco announced that it was beginning to idle its 185,000 b/d refinery in Trainer, PA and may have to shut the plant permanently if a buyer cannot be found.
The EIA says US demand for oil products remains generally weak with gasoline consumption over the last four weeks down 2.4 percent from last year, distillates down 1 percent, and jet fuel down 3.3 percent.
Following the EU’s embargo on oil exports from Syria, Damascus seems to be having trouble selling its oil. Tank farms in the country are filling up and the international oil companies operating there have been told to cut back production. In August the country produced some 370,000 b/d and exported 100,000 b/d. The EU embargo has made it difficult for potential purchasers to finance deals with Syria. With Libya due to resume some oil exports soon, there is no urgency for Asian buyers to risk problems with the US and EU by purchasing such a relatively small amount of Syrian crude.
The trans-Sinai natural gas pipeline to Israel and Jordan was blown up for the fifth time since the Egyptian uprising on Tuesday. Israel has not been receiving gas through the pipeline since the attack in July. Before the attacks, Israel was generating about 20 percent of its electricity with natural gas from Egypt.
After two years of delays, the Iranians say the Chinese will expedite work on the South Pars natural gas pipeline. Tehran recently warned the Chinese that they would lose the project if they did not speed up work.