Brent crude continued to slip this week on bad economic news from Europe and China, while NY futures were little changed despite a jump of 2.6 million barrels in US crude inventories last week. These moves left the spread between NY and Brent crude at the lowest level in six weeks as NY closed at $92.52 and Brent at $108.52 after touching $107.91 on Wednesday, the lowest level this year.
In addition to showing crude inventories up by 2.6 million barrels, gasoline down by 3.6 million and distillates largely unchanged, the weekly stocks report showed US oil production up another 66,000 b/d to 7.16 million, the highest level since July 1992. Stockpiles at Cushing, Okla. fell 1.5 million barrels last week, the biggest one week drop since May 2011. Some analysts are forecasting a major drop in the glut at Cushing in the next few months and the subsequent tightening of the WTI-Brent spread.
The monthly forecasts from the IEA, OPEC and the EIA came out this week. IEA in Paris cut its forecast of the 2013 demand increase by 60,000 b/d to 820,000 b/d on sluggish global economic growth. The EIA in Washington says global liquid fuels consumption in 2012 was 89.1 million b/d and sees this growing by 1 million b/d to 90.1 million barrels in 2013 and to 91.5 million in 2014 as the global economy recovers.
OPEC is starting to worry that the steady increase in US production will cut into its market giving it the lowest market share in ten years. The cartel is now saying that demand for OPEC crude in 2013 will be 350,000 b/d below its 2012 level.
Despite the large drop in crude prices during the last month, NY gasoline futures are only down about 15 cents a gallon and retail prices are only down about seven cents. Some of this is due to the switchover to the more expensive summer blends, ongoing refinery maintenance, and heavy exports. The US may be on its way to record average gasoline prices in 2013 – which obviously does not do the economy much good.
US natural gas prices have continued to climb this week on forecasts of colder weather in the northeast for the rest of March and possibly into April. Futures prices are now pushing $3.70 per million, the highest level seen this year. It is beginning to look as if natural gas inventories at the end of the heating season will be close to 1.8 trillion cubic feet rather that the 2 trillion seen last year.
Tehran is still making optimistic noises about the prospects for some sort of settlement of the nuclear standoff. Most observers, however, are still talking about a critical period just ahead in which either a settlement is reached or things go down hill later this year.
They are still hammering away at each other in Syria with the rebels yet again going after the Aleppo airport; terrorist bombs are continuing to go off in Iraq; and Egypt’s economy is on the verge of a entering a death spiral. As Cairo can no longer to afford to import sufficient motor fuel, shortages are developing across the country. The government and the courts are fighting over whether a new election can be held this spring. The Egyptian pound has lost eight percent against the dollar since the first of the year. Food is becoming unaffordable for many and flour and sugar are up 50 percent in the last year.
The only good news out of the region is that the Sudans (north and south) seem to have settled their differences over transportation fees and are supposed to resume oil exports shortly.
A sign of the times is that FedEx is considering converting its 90,000 delivery trucks to natural gas within the next 10 years.