After two days of quiet trading, oil prices surged in New York on Wednesday after the weekly stocks report showed that US gasoline and distillate stocks fell considerably more than expected last week. The EIA reported that gasoline consumption climbed by 2.6 percent last week lowering gasoline inventories by 3.8 million barrels – more than nine times what had been expected. The jump in consumption came as US gasoline prices fell to a national average of $3.23. Other than cheaper gas, which encourages people to drive more, there is little evidence of a jump in US economic activity in recent weeks. Some of the increased consumption could be going to exports.
Distillate inventories fell by 4.9 million barrels last week, nearly three times what was expected. This is likely due to the increased US export of diesel fuel to Europe, which is suffering from the Libyan production outages; however, this is the time of year when US heating oil tanks are filled for the winter season which could be responsible for some of the jump in demand. With refining still relatively low due to seasonal maintenance, US crude inventories, both nationally and at Cushing, Okla. climbed by roughly 1 million barrels last week.
At the close Wednesday, NY oil futures were up to $94.80 and London was trading at $105.24. Refineries are expected to increase output shortly drawing down the record crude inventory which is the highest for this time of year since 1930.
Four senior oil traders filed a lawsuit claiming that BP, Statoil, Shell, and Morgan Stanley conspired to fix London oil prices by submitting false data to Platts, whose price fixings are used for oil sales around the world. The defendants allegedly moved the oil markets by placing false orders that they intended to cancel after prices moved.
The Middle East has been relatively quiet this week with most attention focused on the next round of Iranian nuclear talks. US negotiators are said to be willing to lift some of the sanctions immediately in return for Tehran’s suspension of the more dangerous aspects its nuclear programs. Hardliners in Washington, Tehran and Tel Aviv are skeptical that the talks are a sellout for both sides and would like to derail the talks.
Diplomats are making little progress in trying to find a settlement for the Syrian situation which is likely to drag on into next year, if not longer, without any hope of peace talks. The UN says that 9.3 million Syrians, some 40 percent of the population, now require food assistance due to supply disruptions caused by the fighting.
This situation in Libya continues to deteriorate with much heavy gunfire between militias being heard in the capitol; a new round of strikes; and the closure of the natural gas pipeline to Italy.
Venezuela seized two US-owned oil rig service machines which the owners had removed from service after the state oil monopoly fell months behind on payments for the services. Payments to foreign contractors by PDVSA, Venezuela’s national oil company, have been falling behind across the board this year as the economic situation worsens. If these companies start pulling out, Venezuela’s oil industry will likely turn to Moscow and Beijing for assistance, if they can get it. The economic situation in the country is becoming increasingly unstable, suggesting that major troubles may be ahead in the coming year.