Developments this week
Oil futures moved up a few dollars a barrel this week with NY trading above $100 before the weekly EIA stocks report, which showed demand continuing to fall, sent prices down to close at $98.71. In London, where cold weather demand and fears of an Iranian embargo have more of an impact, Brent futures settled at $117.20, the highest close since late July. The spread between London and NY prices is back up to $18.49 amid predictions that the spread will soon move above the $28 record set last fall as demand falls and another glut is starting to build at the Cushing, Okla. contract delivery site. The reversal of the Seaway pipeline which will drain some of the excess oil from Cushing is due to take place on June 1st.

Despite the weak demand for gasoline and a 1.6 million barrel jump in inventories, gasoline futures climbed nearly five cents a gallon to close at $2.97, the highest close since August. Gasoline futures are now trading only a few cents below the recent highs set last April during the height of the Libyan uprising scare.

The Iranian confrontation bumps along with increasingly harsh threats emanating from both sides. The Iranians continue to say they will halt some oil shipments to the EU soon, but so far nothing seems to have happened. Iran’s shipments to China continue to run at about half last year’s level as the two sides bargain over long term contracts.

Evidence continues to build that the sanctions the EU, US, and UN have imposed on Tehran are starting to have an impact. The Iranians import about half the food used to feed their 74 million people. This week there have been reports of Tehran defaulting on payment for food shipments, including 200,000 tons of rice from India. Indian rice merchants, which sell a large share of the rice consumed in Iran, are being advised to halt such sales until the situation is clarified. The price of rice in Iran is now $5 a kilo, up from $2 last year. Edible oils are said to be no longer reaching Iran which has only a three or four month supply.

Although it is too early to tell, the extremely cold weather in Russia and the Ukraine may damage the winter wheat crop to the extent that exports to the Middle East will be curtailed.

The Greek debt crisis seems to be reaching some sort of turning point. Eurozone ministers are to meet Thursday evening to go over the latest austerity proposal for Athens and decide whether to release the next bailout payment of €130bn prior to the March 20th default date. Should the money be released, oil prices will likely rise on optimism that the crisis is pushed off for a while; should the new plan be rejected, the road to a disorderly default seems wide open with concerns that a new recession, or worse, will stem from the default.

This week saw new fighting in Nigeria. In the oil-producing delta region, it looks as if 200,000 b/d or so may have been shut in by recent insurgent attacks, including one by the MEND that managed to halt nearly 1 million b/d of Nigerian production a few years back. Given the shutdowns in Syria, South Sudan, Yemen, Nigeria, and whatever results from the Iranian confrontation, there may be significantly less oil available for export in coming months.