Developments this week
In the wake of the steep decline in oil prices that took place last week in anticipation of the French and Greek election results, Brent crude has been relatively stable this week, opening and closing in the vicinity of $113 a barrel. NY crude continued to fall on reports of an unexpectedly large buildup in US crude stocks. June futures closed at $95.81 Wednesday, down about $10 a barrel from where it was trading last week.
After trading as low as $2.91 a gallon on Monday NY gasoline futures have recovered a bit to close at $3.02 as the EIA reported that gasoline inventories declined by 2.6 million barrels last week – three times what analysts were expecting. Although gasoline futures have now fallen by some 50 cents a gallon since mid-March, and many are saying we have seen the last of high prices for 2012, we may not be out of the woods yet.
The reversal of the Seaway pipeline should increase the price refineries have to pay for crude in the Midwest. MasterCard reported on Tuesday that gasoline consumption in the US continues to fall – down by 0.7 percent last week from the week before. Consumption is down by nearly 6 percent from this time last year, although retail prices now are down 17 cents a gallon from last month. Refining problems on both coasts continue to be a problem. The number of refineries producing California’s “boutique” air quality blends has dropped in the past year leading to production shortfalls and higher prices. Currently regular in California is averaging $4.20 a gallon.
The east coast refining problems are not over. Although Delta Airlines is supposed to buy ConocoPhillips’ Trainer refinery, it will likely be fall before it is operational again. In the meantime, Sunoco’s larger Philadelphia refinery could still be closed this summer.
Natural gas prices continued the climb that began in mid-April, touching $2.50 per million BTU’s on Friday on reports that drilling for gas continues to slow and that those utilities that are able are stepping up natural gas consumption to take advantage of the low prices.
There was little news from the Iranian confrontations this week. India agreed to cut back a bit on its imports of Iranian crude. The fighting in Syria seems to be settling into a prolonged stalemate with no sign of outside intervention in sight.
Most of the news impacting the oil markets is coming from the EU this week. Last weekend’s Greek election proved indecisive so that without a government little will be settled. The Eurozone decided to release $5.5 billion to Athens to prevent a default on Greek bonds next week and to give the Greeks time to sort things out. The possibility of another election is looking better all the time. The Spanish economy continues to slide so that Madrid will have to seek a bailout shortly. The new French President seems ready to confront the Germans over the issue of too much austerity. Berlin says it will hold fast. The possibility that Greece will have to leave the Eurozone with unknown consequences for the rest of Europe will likely weigh on oil prices for the foreseeable future.