Developments this week
After an impressive rise last week, oil futures have been drifting down due to the lack of progress in settling the EU’s debt crisis. In contrast to last week’s optimism that a settlement would be reached at a summit meeting this coming weekend, so far this week there has little good news. France and Germany are split on how the coming bailouts should be shared between the public and private sectors. Germany is proposing that private Greek bondholders accept a 60 percent write-down, while the French are talking as little as 30 percent. Meanwhile, Moody’s is talking about downgrading France’s triple-A credit rating.
An anti-austerity strike in Greece turned violent on Wednesday, raising doubts about the utility of the Greek bailouts in general. Participants in the endless meetings that have been held in the last 10 days say there is slow but steady progress, but an agreement is going to take a while longer. With a rapid solution to the euro-zone problems in doubt, traders turned pessimistic — sending NY and Brent crude down over $2 a barrel on Wednesday to close at $86.11 in NY and $108.57 in London.
This week’s oil stocks reports came as somewhat of a surprise with US crude inventories falling by 4.7 million barrels as opposed to the million barrel increase analysts had expected. Gasoline and distillate inventories fell too, leaving total US commercial petroleum inventories down by almost 11 million barrels last week. While weekly inventories jump around, the IEA keeps reminding us that global stocks are being slowly drawn down as the world is consuming more oil than it is producing.
Several key producers of Libyan oil say they are beginning to resume production as the fighting subsides. The ambush of Turkish troops by Kurdish insurgents on Tuesday resulted in Turkish attacks on Kurdish camps inside Iraq. Ankara is saying that Damascus instigated the attacks, which left 24 Turkish soldiers dead, in retaliation for the sympathy Turkey has extended to the Syrian protestors.
Beijing announced that its GDP only grew by 9.1 percent in the first 9 months. China’s crude refining was only up by 1.2 percent year-on-year in the third quarter to 7.95 million b/d. While the pace of China’s growth is clearly slowing a bit, 9 percent is still spectacular for a country of 1.3 billion people. China warned that its hydropower output dropped by a spectacular 24.5 percent in September as compared to last year due to wide-spread drought. At the end of the month water available to generate electricity at the major dams this winter was down by 36 percent year-on-year. This suggests that China will either have to dig or import more coal or economic growth rates may be threatened. When electricity gets tight Beijing has a record of turning to imported oil products to make up the difference.
The US Commodity Futures Trading Commission approved new limits on how many futures contracts a firm can hold. This move, which is designed to cut back on excessive speculation during rapid price movements, will be vigorously opposed by Wall Street firms that have made a lot of money by speculating in commodities.