Oil prices, which have been climbing steadily for the last two months, dropped sharply on Wednesday to close down some 3 percent for the day at $40.47 in London and $39.79 in New York. The drop came after the EIA’s weekly report showed that US commercial stocks of crude grew by 9.4 million barrels to 535 million. The price drop was tempered by the news that US gasoline stocks fell by 4.6 million barrels and that stocks at Cushing, Okla. were down by 1.3 million barrels. A weekly surge in imports of 691,000 b/d, largely due to the severe storms along the Gulf Coast which delayed imports the week before last, likely had a lot to do with the jump in imports and possibly even the drop at Cushing. The EIA also estimated that US oil production fell last week by 30,000 b/d – not much of a drop for a country that pushes 16 million b/d through its refineries.
The 50 percent increase in oil prices during the last two months came largely from the hype concerning a production freeze by the major exporting countries. These nations are already producing at record highs and have no intention of cutting production in the near future. The two countries that have the technical capacity to increase production by a million b/d or more in the next year or so, Iran and Libya, have said they will not attend the meeting on April 17th to discuss a freeze. Naturally, the oil exporting countries are delighted by the 50 percent price increase achieved mostly by talk of a freeze and hints that this freeze could lead to some sort of production cutting agreement between Russia and OPEC. Commerzbank called the meeting and the implication that there would be a production cut a “farce.”
This week Morgan Stanley took issue with the notion floated last week that the 800,000 b/d of crude production unaccounted for in the IEA’s 2015 estimate of oil supply and demand meant that there really was not much of an oil glut. The implication of this assertion was that oil prices could move higher much sooner than is generally believed. The bank said that the missing barrels are probably in the stockpiles of countries outside of the OECD, including those of China, and that the proportion of global inventories in developing countries, where they are not monitored by the IEA, should be growing.
While this week’s jump in US stockpiles was much larger than usual, most of it can be attributed to bad weather affecting crude imports. The decrease in US gasoline stocks was more than usual for this time of year, but it will be a while before this can be attributed to a large and permanent increase in US gasoline consumption. US gas prices were at recent lows in January and February but have rebounded by nearly 30 cents a gallon at the pump in the last month. Some are talking about a surge in US driving this summer due to low fuel prices, but it seems too early to say that this will occur. There are still concerns that global overproduction will continue for some months longer, testing world capacity to store excess crude and refined products.
The ISIL attacks in Brussels this week caused oil price increases to pause briefly due to uncertainties as to where the Middle Eastern situation was going. In Algeria, BP and Statoil have begun withdrawing some staff from their natural gas plants in the eastern part of the country following terrorist attacks.
An influential group of scientists has warned once again the impacts of global warming now seem to be coming more quickly and will be more catastrophic than previously thought.