Peak oil notes – Oct 2

Brent crude fell to its lowest level in more than two years after the Saudis dropped their official selling prices, suggesting that they do not plan to curtail production anytime soon to force prices higher. Wednesday’s decline which followed a $4 drop in New York oil on Tuesday left Brent at $94.16, the lowest since June 2012, and New York at $90.73.
 
The week’s stocks report showed a decline in crude inventories of 1.4 million barrels despite a decline in US refining as fall maintenance kicks in and an increase in imports. US crude stocks now have declined in 12 of the last 14 weeks. US refining, however, is still above the normal for this time of year, and US imports for the week are still considerably below the same week last year. There has been considerable commentary over the EIA report saying US crude exports hit a 57 year high in July. Most of the exports go to Canada, but a shipment of Alaskan oil went to South Korea last week, the first Alaskan exports in 10 years. The stocks report showed US exports at 420,000 barrels last week, but Citigroup analysts believe this number understates actual exports now that lightly processed condensates can be exported as refined products.
 
US gasoline stocks fell last week by 1.8 million barrels to the lowest since November 2012, and total commercial petroleum inventories were down by 5.8 million barrels last week. The EIA says domestic production dropped by 30,000 b/d to 8.83 million last week, but this numbers is largely an estimates, as it takes several months accumulate actual  production data.
 
In general the drop in oil prices is being driven by what is perceived to be too much oil chasing too few buyers. Economies are sagging in the EU and China. US demand is up a bit though not that strong. Credit Suisse says that production cuts are necessary to shore up oil prices. The outlook seems to be that still lower prices are ahead. If this should happen several crude exporting countries will have trouble keeping their budgets in balance and some US shale oil producers will have trouble making a profit.
 
US natural gas futures, which have been climbing for the last two weeks, fell sharply on Wednesday and are currently just above $4 per million BTUs. The US Federal Energy Regulatory Commission approved the construction of a new LNG export terminal on the Chesapeake Bay this week. The announcement brought howls of protest from environmental groups who believe the move will simply contribute to the climate change problem.
 
The big news from the Middle East this week has been the debate in the Turkish parliament over authorizing intervention by Turkey’s armed forces into Syria and Iraq. The Turks are talking about creating and protecting a buffer zone that would shelter the hundreds of thousands of refugees that are fleeing into Turkey to avoid the Islamic State and Syrian government attacks. A decision by Ankara to intervene would change the Iraq/Syrian situations markedly. If the Turks were to allow coalition forces to use bases in Turkey, it would be a major blow to the IS.
 
There has been little progress in the Ukrainian situation this week. Separatist forces are still attacking Ukrainian government forces, and Moscow says Kyiv must decide soon on paying its natural gas bill to Gazprom if natural gas shipments are to be resumed this winter.