So far this week oil prices suffered their largest three-day drop of the year and remained below the $90 threshold for the first time since last December. Oil futures in New York settled at $86.30 per barrel on Wednesday, down six percent from $91 at the week’s start. The price of London’s Brent crude this week also slipped below the $100 threshold for the first time this year, closing Wednesday at $97.80. The WTI-Brent price gap remains around $11, also around the year’s lowest level.
Traders point to declining demand for the downward price move. In the US the price correction appears to be driven by some negative economic headlines and decreasing gasoline demand. Consumption fell 1.1% to 8.3 million b/day last week– the lowest gasoline demand for that week in 16 years. The Boston bombing on Monday, weaker economic growth than expected in China, soft economic reports from the US plus Europe’s malaise weighed on markets. Several other commodities declined broadly, including gold (down 8% this week), silver (-10%) and copper, which hit its lowest level in eight months. The IMF’s recent 0.2% reduction of forecast world economic growth for 2013 may also have hurt commodities.
Meanwhile natural gas futures continue their gradual move higher since mid-March, settling Wednesday at $4.19. Lingering winter-like weather in Chicago and other parts of the Midwest during early spring meant that gas companies pulled small amounts of gas from storage rather than starting the post-heating-season injections. Support for natural gas may also have come from lower amounts of year-over-year gas in storage. With fewer wells drilled for gas, the current price trend is expected to persist.
Economic news from Europe early this week was more of the same. While Greece moved a step closer to receiving its next bailout loan, the deal’s impact on the Greek economy in the near term is likely to be more government layoffs and associated economic pain. Cyprus has agreed to sell some gold reserves as part of its bailout plan, thereby raising concerns that other troubled Eurozone nations may be forced to take the same action. More broadly, Europe continues to suffer a widespread recession.
In Venezuela the tightly contested but successful election of Nicolas Madura, Hugo Chavez’s former vice-president, spells potential uncertainty. Opposition leader Henrique Capriles, who lost by less than a two-percent differential this past Sunday, initially refused to recognize the results. A protracted dispute could be destabilizing for South America’s largest oil producer. Maduro’s win makes it likely that state-run oil company PDVSA will continue dedicating substantial oil revenues to fund social programs, which in turn will likely continue to undermine the nation’s oil-producing infrastructure.
Troubles in the Middle East continued apace. In Iraq, a string of coordinated bombing attacks on Monday in Baghdad and other cities killed at least 31 and wounded over 200 just one week before Iraqis vote in their first elections since the US withdrawal in 2011. The attacks cast doubt on the current regime’s ability to prevent violence. A powerful earthquake struck southeastern Iran near the Pakistani border of Iran Tuesday night, leaving untold numbers dead; registering 7.8 on the Richter scale, it is reportedly the largest quake to strike Iran in four decades. There are no reports as to whether elements of Iran’s nuclear program or their oil infrastructure have been harmed.
In North American pipeline news, Exxon Mobil has replaced the damaged pipeline that ruptured in Mayflower, Arkansas, spilling roughly 5000 barrels of oil in a residential neighborhood; the oil major promises to buy about a dozen of the most seriously impacted homes. The Keystone XL pipeline continues to make waves, with the House Subcommittee on Energy and Power advancing legislation that would eliminate the need for State Department approval.