Oil prices continued to fall this week with New York closing Wednesday at $27.45 and London at $30.84.  There was a brief price spike on Wednesdaywhen the weekly stocks’ report came out showing a 700,000-barrel decline in the crude inventory, but this was quickly erased when traders noticed that gasoline and distillate stocks rose by a combined 2.5 million barrels and that total US commercial stocks are now at a record 1.3 billion barrels.
Most oil market observers are pessimistic about the immediate future for prices. This IEA came out this week saying they expect the oversupply of oil to continue for months and that there is little prospect of a grand Russia-OPEC deal to cut production. OPEC also weighed in with a forecast that the demand for oil will be weaker this year. The cartel says its production increased by 131,000 b/d in January to 32.33 million b/d, with higher output coming from Nigeria, Iraq, Saudi Arabia, and Iran.
Some oil industry executives are saying that the markets will balance themselves before the end of the year, but many are not so sure. The “how-low-will-prices-go” game continues with Goldman Sachs now talking about oil below $20 a barrel – which now is only $7 away – before the markets stabilize. There is much discussion again about storage capacity running short in some areas. Some are even talking about crude shipments leaving the US for Europe to find a place to store the stuff. There is talk of using tankers as floating storage. It is the less flexible inland storage facilities such as Cushing, Okla. and landlocked Austria that are in the most danger of running out of oil storage space.
Gasoline prices in the US have dropped 8 cents a gallon in the last two weeks, but it is hard to see much economic impact. US shale oil producers continue to produce crude at a faster rate than the government predicted. US natural gas prices are approaching $2 per million BTUs again on too much production and forecasts of warmer weather for the rest of February.
The Obama administration is asking for $300 billion in new taxes on the oil industry to support the development of clean energy. This, of course, seems highly unlikely to get through Congress.
Everybody is expecting Venezuela to start defaulting on its debts in the near future. The first test will come on February 26th when some $1.5 billion in debt comes due.
As Aleppo, Syria seems to be close to being overrun by government, Iranian, and Hezbollah forces, supported by heavy Russian bombing, fears are raising that thousands of civilians may be killed or starved to death as the battle progresses. The UN calls what is going on as “extermination by government.” Thousands continue to flee to the Turkish border and the talk of Turkish/Saudi intervention is increasing. The Pentagon is seeking $200 million from Congress to support military operations in Libya and Africa. Talk of a military intervention by the US and Europe to wipe out the Islamic State pocket at Sirte continues.