Developments this week
Oil prices continued to slump this week, continuing the trend which began in early May. A combination of weak economic data from the EU and China coupled with mixed US data and growing crude inventories sent NY oil futures down another $4 a barrel this week to close Wednesday at $92.81. NY gasoline futures followed crude prices down to settle at $2.92 a gallon, some 45 cents a gallon below the March highs. In London, Brent crude was not quite as weak, widening the spread with NY to $18.90 on Wednesday.
The Seaway pipeline reversal is scheduled to take place today which should begin to drain the glut at Cushing, Okla. to gulf coast refineries even though its initial capacity will be only 150,000 b/d.
MasterCard reports a small increase US gasoline sales last week as retail prices have fallen 18 cents a gallon in 4 weeks. Gasoline consumption, however, is still 3.6 percent lower than at this time last year.
The weekly US stocks report showed the usual increase in crude inventories, up another 2.1 million barrels to the highest level since 1990. There was a rather large and unexpected drop in US gasoline and distillate stocks, however, which were down by 2.8 million and 1 million barrels respectively. When coupled with the relatively weak US consumption data and the EIA report that deliveries from refineries are up by 0.4 percent from last year, it suggests that a lot of product-exporting from the US is going on.
US natural gas futures continue to climb this week with a 10 cents per million jump on Wednesday to close at $2.63 due to increased consumption by electic utilities coupled with rapidly declining numbers of rigs drilling for gas. The number of permits to flare natural gas in Texas has increased from 107 to 2008 to 651 last year. As drilling for oil in Texas’s Eagle Ford shale deposit increases, drillers are producing increasing amounts of gas with no way get the product to market and little economic incentive to build the necessary pipelines.
There was little change in the underlying forces moving the oil markets this week. The Iranian oil sanctions are still on course to become fully effective on July 1st. Low-level talks with Iranians produced some optimism, but it will be a while before we know how the intricacies of this situation play out. The Syrian fighting gets worse and the embargo continues to tighten on Tehran.
The inability of Athens to form a government will force new elections which likely will decide if Greece remains in the Eurozone or if the EU falls into a full-blown economic crisis later this year. A run on Greek banks has already begun and Spain’s borrowing rates continue to climb.
The IMF issued a report saying that oil prices could double over the coming decade and IEA reiterated its belief that recent oil price declines do not mean that we are out of the woods this year.