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Peak Oil Notes - 15 Oct

After a 9 percent increase last week, oil prices fell some $3-4 a barrel on Monday and Tuesday, but remained largely unchanged on Wednesday -- closing at $46.64 in New York and $49.15 in London. The weekly stocks’ report was delayed until Thursday this week because of Columbus Day, but analysts are expecting another increase in US crude stocks as is normal for this time of year.
 
“Oversupply” continues to be the word-of-the-day with OPEC continuing to pump out about 2 million b/d more than is being consumed and the global economy continuing to slide.  A new Reuters analysis calculates that the world produced and sent to storage some 550 million barrels more than was necessary in the first nine months of this year.  While the overproduction is thought to be down from 2.6 million b/d in the 2nd quarter to 1.7 in the 3rd, a new IEA forecast says that the oil glut will continue well into 2016, especially if Iran comes back into the markets in a big way after the sanctions are lifted. The EIA is expecting US shale oil production to fall 93,000 b/d in November, but declines in US production that we have seen are not enough to offset current and projected OPEC production and exports.
 
A steady flow of bad news about the global economy and the eventual demand for oil continues to come in. US retail sales barely rose in September and producer prices fell sharply, raising still more concerns as to whether the Federal Reserve will be increasing rates any time soon. China’s imports fell for the 11th straight month and are now at a post-2008 low. Analysts are saying that China’s GDP growth numbers, which will be out next week, will show an increase of 6.6-6.7 percent – well below the circa 7 percent target the government is talking about.  However, the government has good reason to fudge the numbers more than usual.
 
Despite the slowdown in overall imports, Beijing’s oil imports continue to move be holding up. While China’s oil buying was tepid in the 3rd quarter, imports in September were up by 1.3 percent year over year and traders say buying for October-November delivery is up sharply. Much of this is attributed to low global oil prices with the government adding to its strategic reserves, and Chinese refiners filling their crude storage tanks at bargain prices. During the past year, strong Chinese importing has not had much of an effect on oil prices. The Chinese obviously have only a limited amount of storage so bargain-buying-for-import is not likely to continue much longer. 
 
In Europe, Gazprom restarted gas deliveries to Ukraine after receiving $234 out of a $500 million prepayment for October supplies. Moscow seems to be backing down its pressure on Ukraine in light of the stepped up activity in Syria.
 
The situation in Syria seems to be headed to some sort of a showdown. In addition to substantial Russian airpower, Iranian forces estimated at some 1000 men have joined Hezbollah and Syrian forces in an assault to capture what is left of Aleppo. The US and Gulf Arabs are stepping up delivery of anti-tank weapons to moderate rebel groups. The effectiveness of these weapons in the desert against government armored vehicles is credited with the gains that the rebels have made in pushing back Assad’s forces in recent months. The outcome of the coming battle for Aleppo, Syria’s largest city, may be critical to the course of the Middle Eastern situation.
 
In Iraq, the government of Kurdistan is in a crisis due to insufficient funds to prosecute its war with ISIL and feed the large numbers of refugees that have fled to the province. The recent move to step up military support for the Kurds as they join a new coalition to fight ISIL has Ankara, which now considers itself in a full-scale war with Kurdish separatists, very unhappy. 

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