Peak Oil Notes – Dec 17

Oil prices rose a couple of dollars on Monday and Tuesday as traders decided that there must be an end to steady price drops somewhere. The jump only lasted until the weekly stocks report showed an unexpected, and unusual for this time of year, increase in the US crude stockpile of 4.8 million barrels, an increase in the US gasoline stockpile of 1.7 million barrels, and an increase in distillate stocks of 2.6 million barrels.  Analysts had been predicting that the inventory would fall by one or two million barrels making the stockpile increase a surprise. To give the American Petroleum Institute credit, this time its “survey” of oil stocks at least got the direction if not the magnitude of the move right by announcing that inventories had increased by 2.3 million barrels.
 
Imports were unusually high again suggesting that the US may be the only place in the world with much crude storage space left. The jump in stocks was enough to convince traders that the oil glut is not over yet. Prices retraced the Monday and Tuesday gains to close at $35.53 in New York and $37.35 in London.   
 
The EIA also estimated that US crude production rose by 12,000 b/d last week, but these weekly estimates have met with much skepticism of late with most observers preferring to wait until harder production numbers come from state governments.
 
On Tuesday, Congress agreed to a price deal that would lift the ban on US crude exports. Ironically just as the spread between NY and London prices shrunk to the smallest it has been in years, at one point less than a dollar a barrel, making it doubtful that US crude producers can profit by shipping oil off to foreign customers.  The Federal Reserve brought in the first of what could be many small interest rate increases on Wednesday afternoon. In theory higher US interest rates will raise the value of the US dollar and further depress oil prices. Given the amount of overproduction in the world, small interest rate increases are unlikely to have much effect.
 
US natural gas prices have continued to fall this week and are now at the lowest level since 1999 due to the unusually warm weather across much of the US.  Some are starting to worry that the US could run out of storage capacity for excess natural gas by the middle of 2016. During December the demand for gas has been running at 76.6 billion cubic feet per day or 6.4 billion lower than normal.
 
Low prices continue to take a toll on the oil and gas industry with more news coming in every day about bankruptcies, forced mergers, and declines in the junk-bond market which has been financing the shale oil and gas boom of late.
 
Overseas, Beijing decided that oil prices have fallen enough and announced that it will no longer cut gas and oil prices for retail consumers in China. The government says these very low oil prices just encourage wasteful consumption and more pollution.  Given the big jump in sales of large pickup trucks in the US in recent months, the Chinese may have a good point. There was a report on Tuesday that China may be slowing the growth of its strategic reserve which has been one of the mainstays of increased demand for oil this year. If this is true, the growth in demand may be smaller in 2016 than forecasters are currently estimating.
 
The Saudis announced that they have formed a 34-nation Islamic Military Coalition to fight terrorism. No Shiites allowed.