The EIA’s report that there was a larger-than-expected drop of 3.4 million barrels in US crude stocks last week was balanced off by lower demand for gasoline and distillates leaving the markets largely unchanged so far this week. New York futures closed Wednesday at $102.64 and London closed at $108.40 narrowing the WTI/Brent spread to $5.76. Inventories at Cushing, Okla. fell by 321,000 barrels last week to a five-year low of 21.4 million. US crude inventories are now down about 10 million barrels from the all-time high of 399 million set on April 25th. US crude imports for the first 22 weeks have averaged about 400,000 b/d lower than during the same period last year.
US natural gas futures continue to rise on mixed forecasts of warmer weather in the US during June. So far natural gas production in May has been enough to start rebuilding stocks for next winter at a sufficient pace, but traders are worried just how hot this summer will be.
The long awaited draft EPA rule on US carbon emissions, which mandates a 30 percent cut by 2030, was released this week. The announcement brought the expected firestorm of complaints from the fossil fuel industry and its allies in Congress. Lost in the maelstrom was the news that Beijing had taken note of the first major US action to limit carbon emissions and will follow suit. China’s announcement that it will follow the US lead is one of the most significant developments affecting climate change in many years and could mark a major turning point. Beijing has already filed an acceptance to the Doha amendment of the Kyoto protocol which commits it to curb greenhouse gas emissions by 40 percent from a 2005 base before 2020.
The other interesting development this week was a report by the IEA containing the conclusion that increases in US shale oil production will not continue indefinitely and could slow by 2020. The Agency says after that the US will become more dependent on Middle Eastern oil. This is a major admission on the part of the IEA which had been very optimistic about the prospects for shale oil production in recent years.
Elsewhere in the world, heavy fighting continues in the eastern Ukraine, although Kyiv and Moscow seem to be making some progress on negotiating the natural gas issue. In Benghazi fighting between Islamist militias and their opponents continues. There has been no resolution of the two prime minister dispute. The renegade general Haftar survived a suicide bomb attack and the current prime minister survived a grenade attack. Despite a report that one small Libyan export terminal is open again, it is difficult to see much oil being exported amidst all this chaos.
Diplomats are saying that the July 20th deadline for settling the Iranian nuclear dispute seems in jeopardy. While the agreement last November allows for a six month extension, the US Congress, which seems eager to impose more sanctions on Iran, may make trouble if the Obama administration asks for an extension.