Crude has traded quietly this week with New York futures hovering around $97.50 a barrel where they have been for the last two weeks and London around $106 a barrel. Trading has been dominated by heavy demand for heating oil due to the unusually cold weather in much of the US, and fears that the economies of China and other developing nations are slipping.
The weekly stocks report showed a modest rise in the US crude inventory due to less refining and a big drop in crude imports to 6.9 million b/d thought to be due to bad weather. Distillate inventories fell by 2.4 million barrels last week and are now well below normal levels for this time of year. As could be expected, propane inventories fell too, resulting in total commercial petroleum inventories falling by 5.3 million barrels. The first full week of operations for the new Keystone XL pipeline leg from Cushing, Okla. to the Gulf Coast resulted in inventories at Cushing dropping by 1.6 million barrels. The new pipeline is expected to drain off the oil glut at Cushing and bring the WTI/Brent spread back to normal levels. On Wednesday the spread temporarily slipped below $8 a barrel for the first time since October, but closed at $8.87.
The extremely cold weather has had natural gas futures on a roller coaster. On Wednesday they hit a four-year high of $5.73 per million, before settling back to close at $5.03 on new forecasts that temperatures will moderate next week. Natural gas prices are now up 19 percent this year-to-date.
Recriminations continue in Washington over the Keystone XL pipeline and the export of crude. The release by the State Department of its final report saying that the pipeline would cause minimal environmental harm has Republicans and a few up-for-reelection Democrats demanding that the President approve the project. Environmentalists are demanding that still more studies be undertaken. Equally controversial is the proposal to lift the embargo on crude exports so that domestically produced shale oil can be sold abroad at higher prices than those prevailing in the US. The API commissioned a study which concluded that US consumers would save $6.6 billion by allowing oil exports. Refiners, chemical companies, and consumer advocates are staunchly opposed – holding that US consumers would end up paying world prices for their oil and receive no benefit from domestic production.
Libya is back in the news. The Prime Minister says he has ordered the Army to seize the three eastern oil ports which remain shut and restore oil exports. The Libyan Army says it has not received an order to carry out such an operation, and would think about it if such an order were ever received. Most observers doubt that the Army has the strength to overcome the numerous militia groups in the eastern part of the country.
In another development, Libyan officials say that “bandits” in the western part of the country have closed a valve blocking some 40 percent of the Sharara oil fields 350,000 b/d of production from reaching the coast. If this turns out to be true and the bandits don’t turn the valve back on for a while, Libya is back to not exporting much oil.
The usual bombs were going off in Iraq this week killing dozens and maiming hundreds.