Developments this week
Oil prices have continued to climb this week with Brent nearly touching $120 a barrel on Wednesday before closing at $118.93. NY oil traded as high as $102.54 before closing at $101.80 a barrel. Brent crude has now climbed $17 a barrel since the mid-December low while NY oil has climbed about $8 a barrel. Gasoline futures in NY continued their two-month long climb and are now above $3 a gallon, up 50 cents since December.

Once again the Iranian confrontation is driving up prices. On Wednesday Iran’s state controlled Press-TV news service announced that Tehran had halted oil shipments to six EU countries. The story was quickly denied by Iranian government officials. Tel Aviv is saying that a series of attempts to kill Israeli diplomats can be traced to Tehran. This development is further increasing tensions as is the announcement by Tehran on Wednesday that it is making progress in enriching uranium and can now produce its own nuclear reactor rods. Experts note that nuclear reactor rods are relatively easy to make, but require years of testing before they are safe to use. The announcement is seen as a way of raising the morale of Iran’s voters who are suffering increasing economic hardships due to their leader’s policy of confrontation.

This week’s stocks report showed a small but unexpected drop in US crude inventories; however, total commercial petroleum inventories were down by 4 million barrels last week. Despite continuing talk of an economic recovery taking place in the US, gasoline consumption over the last four weeks is down 6.4 percent over the same period last year. MasterCard reports that US gasoline consumption last week was down to 8.01 million b/d, a 3.1 percent decline from a week earlier. US gasoline consumption has now declined for 47 consecutive weeks. Retail gasoline prices now average $3.52 a gallon and are over $3.85 a gallon in several coastal states such as California, and New York, suggesting that consumer demand for gasoline will continue to slacken until the situation changes.

Despite the Greek parliament’s concurrence with the Eurozone’s austerity demands over the weekend, many Eurozone members are skeptical that Greece will find the political will to live up to the agreement in the face of the riots and near universal public disgust that accompanied the vote. A decision on the next bailout package has been postponed until Monday amid increasing talk that letting Greece default may be preferable to pouring money into Greece’s economy indefinitely. The only good news of the week was a pledge by Beijing that China will help with EU’s debt crisis – hopefully without the onerous demands that accompanied earlier EU requests for aid.

Elsewhere, the standoff between Sudan and South Sudan remains deadlocked after Sudan seized an additional 2.4 million barrels of South Sudan’s oil to pay for “transit fees.” Baghdad has told Exxon that it is no longer eligible to bid on contracts in Iraq in the wake of the company signing a contract with the semi-independent Kurdish government. Given that Iraq is letting the foreign oil companies earn such little profit for their efforts, Exxon may figure it is better off linking up with the Kurds who have considerable quantities of oil to exploit.

A major oil pipeline was blown up in the midst of the fighting in Syria and Yemen’s oil workers have gone on strike – essentially halting production.