Peak Oil Notes – Aug 13

New York oil prices hit a six-year low of $42.69 on Tuesday before recovering later in the day and on Wednesday to close at $43.30. Brent followed a similar pattern closing at $49.86. The big news of the week was Beijing’s devaluation of the yuan on both Tuesday and Wednesday in an effort to help its sagging exports and faltering economy.  Concerns that US crude inventories, which were down by 1.7 million barrels last week, will start growing after Labor Day kept the markets from rebounding more sharply.  Gasoline inventories were down by 1.3 million barrels, but distillate and propane inventories were up leaving total commercial crude inventories 5.6 million barrels higher last week.
 
The dollar, which has been strong lately, fell by 1 percent on Wednesday pushing up oil prices on doubts that the Chinese devaluation will permit the Federal Reserve to follow through on its widely expected interest rate increase next month.  Two large US refineries shut down for unscheduled maintenance this week tightening gasoline markets in the Midwest, supporting oil prices. Crude inventories are very high for this time of year and fall maintenance is likely to send them higher in a few weeks.
 
The IEA and EIA were out with new forecasts this week. The rapid decline in oil prices in the last few weeks has led the IEA to forecast a much stronger demand for oil which is now growing at the fastest pace in five years. The Agency now says that demand will be up by 1.6 million b/d this year, an increase of 200,000 b/d, and will then climb by another 1.4 million b/d in 2016. This forecast suggests to some that the world’s crude markets are no longer as oversupplied as is generally believed. However the IEA still believes the markets are oversupplied by 2 million b/d, but warns that this could diminish rapidly due to fast-rising consumption. Most, however, including the IEA, seem to expect that the glut will continue through 2016 and into 2017 due to large inventories and the possibility that additional Iranian oil will be coming onto the market later this year offsetting forecast declines in US shale oil production. The Agency also reported that global oil supply fell by 600,000 b/d in July due to lower non-OPEC production.
 
In Washington, the EIA says that US crude production fell by 100,000 b/d from June to July and is expected to continue falling due to low prices until late in 2016.
 
In the Middle East, Assad’s forces seem to be losing ground to a combination of rebel forces. This has led to renewed efforts to find a diplomatic solution to the Syrian crisis. In Iraq, the Cabinet and Parliament have backed proposals for a sweeping overhaul of the dysfunctional government.
 
Bad economic news continues to emanate from Beijing and Moscow. The Chinese are thrashing around trying to stop the decline in their economy and stock markets, while there is little the Kremlin can do but repress and jail the government’s political opponents while waiting for oil prices to rise.