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Peak oil notes - March 8

Developments this week
So far this week, oil prices have moved little as the announcement of talks with Iran and the prospect for slower growth in China were balanced off by economy-stimulating progress on the Greek debt issue. On Wednesday NY oil closed at $106 and London at $124 – about where they started the week. The prospects of warmer weather pushed natural gas futures in NY to a 10-year low of $2.30 per million BTUs on Wednesday. Gasoline futures which have been relatively steady for two weeks now seem to have slowed the month-long increase of retail gasoline prices.

The weekly stocks report showed US crude inventories climbing by 832,000 barrels. Stockpiles at the Cushing, Okla. WTI delivery point climbed 2.3 million barrels to 36.2 million – the biggest gain since December 2009. Demand for oil products in the US fell by 78,000 b/d last week to 18.2 million b/d – down 7.6 percent from the same week last year. Gasoline consumption over the last four weeks is down nearly 8 percent from last year, confirming that prices approaching or above $4 a gallon do indeed kill demand.

Most of the week’s news has been concerned with the visit of Israeli Prime Minister Netanyahu to Washington where he conferred with President Obama and, along with nearly every other politician, addressed the 13,000-person meeting of the American Israel Public Affairs Committee on the Iranian confrontation. At one point, the anti-Iranian rhetoric became so overheated that the President reminded the country that “loose talk of war” was not helping the situation. He also criticized his GOP opponents for politicizing a serious national security issue by trying to appear more threatening than he is without having any concrete proposals or considering the consequences. The President reiterated that he would not allow Iran to acquire nuclear weapons, but that military action was a last resort and clearly was not necessary at the present time.

There is increasing evidence that sanctions on Iran’s economy are having an effect and that the Iranians are facing increasing difficulties in selling their oil and conducting foreign trade. Concern is increasing that gasoline prices are increasing faster than expected and certainly before the EU has had time to line up non-Iranian sources of oil.

Beijing’s announcement that it expects its GDP growth to fall to 7.5 percent from the 10 or 11 percent it was enjoying a few years ago is another sign that the global economy is slowing. Beijing realizes its exports are likely to fall this year and is concentrating on domestic consumption. Another interesting development is the announcement that China’s coal production is expected to grow by only 3.7 percent vs. the 10 percent annual growth in recent years. Electricity output is expected to slow to 7.5 percent as compared to the double digit increases we have seen in recent years.

Beijing city is capping its coal consumption to 15 million tons by 2015 from the 26 million tons it has been burning in recent years in an effort to clean up the capitol’s air. Four major power plants will be converted to natural gas. One problem with this plan is that neighboring Hebei province and Tianjin municipality are currently burning 327 million tons a year -- and smoke does tend to blow.

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