Developments this week
The slump in oil prices that began last week continues with NY oil down about $7 a barrel in the last five trading sessions to close Wednesday at $85.73 and London’s crude down about $5 since last week to close at $107.85. Bad economic news, weak demand and growing inventories were behind the move and were enough to offset new threats from Tehran.
The weekly US stocks report showed crude supplies increasing by 5.9 million barrels, more than three times what analysts had been expecting. Gasoline stocks were up by 1.4 million barrels. The report also showed US oil production last week climbing to 6.6 million b/d, the highest in 17 years, and US gasoline consumption falling to 8.49 million b/d.
Weak demand for gasoline has led to 10 straight sessions of falling gasoline futures – the longest losing streak since gasoline futures began trading 26 years ago. Gasoline futures in NY are down about 35 cents a gallon since early last week. In contrast with crude and gasoline, distillate stocks continued to fall reflecting the tight situation in the global distillate market. Unlike US gasoline prices which have fallen about 20 cents a gallon in the last month, US diesel prices are actually a touch higher than then they were 30 days ago.
Most of the reporting out of the Middle East this week has focused on the possibility of a ceasefire during Eid. On Tuesday Tehran threatened to halt all its oil exports if Western sanctions are strengthened further. Apparently Tehran hopes that its remaining customers would raise such a fuss that the West would have to back down. The threat appears to have had no impact on the oil markets which continued to fall after the threat was made. Car bombs went off in Iraq and Syria while Turkey and Syria each had a pipeline bombing. Anti-government demonstrations took place in Kuwait after the government announced that the next elections would have only one candidate for each seat. Unidentified planes came out of the east early Wednesday morning and blew up Sudan’s armaments factory which has been linked to the supply of arms to Gaza. Sudan is blaming the Israelis who refuse to comment.
A combination of flooding, accidents and the usual pipeline taps by thieves has resulted in 517,000 barrel equivalents of Nigeria’s oil and gas being shut in.
China’s cabinet office released a lengthy paper on energy policy which among other things points out that the country has increased its consumption of oil by an average of 5.8 percent every year since 1981. The Chinese purchasing managers’ index shows that economic conditions were slightly better in October.
The Eurozone crisis continues to worsen with Germany’s manufacturing, the heart of the zone’s economy, falling unexpectedly in September. Most of the decline came in the automobile industry which is shrinking rapidly and in exports to southern Europe which is in no shape to buy much of anything these days.