Peak Oil Review: A Midweek Update - Apr 7

The oil markets are so anxious for a price rebound these days that any piece of bullish news sends them into a minor frenzy. This week we actually had some news supportive of higher prices. The US crude inventory, which analysts were expecting to increase by another two or three million barrels as it has been doing for weeks, instead fell by 4.9 million. A price surge erupted with prices rising by 5 percent on Wednesday so that New York futures closed up $1.86 to close at $37.75 and London closed up $1.97 to $39.84. As usual, the fine print of the report was missed in the enthusiasm. This showed gasoline and diesel inventories climbing so much that total US commercial petroleum inventories increased by 1.1 million barrels last week. One week does not make a trend. Some of the market’s strength in recent weeks was attributed a jump in US gasoline consumption as prices hit record lows. The ongoing switchover to summer grades of gasoline has pushed retail gasoline prices up by 30 cents a gallon in the past month or so and some are already detecting a fall in demand. Last week’s increase in gasoline stocks was the first in six weeks.

Other factors contributing to the price increase: The Federal Reserve’s decision to go slow on rate increases has resulted in a weaker dollar that pushes up oil prices. TransCanada Corp. has delayed the restart of the 590,000 b/d Keystone pipeline that delivers crude to Cushing and Illinois. Some believe that recent figures suggest that the Chinese economy is doing slightly better. This is seen as another good sign for oil. Finally, the OPEC/Russian production freeze and the April 17^th meeting comes up soon. As nearly every net oil exporting country on earth is desperate for higher oil prices, there is no shortage of senior oil officials hinting that the Doha meeting will somehow result in lower production.

The issue of whether the Cushing, Okla. oil depot might be reaching capacity was back in the news this week. Stocks there peaked in late March, and have been creeping lower since, but some analysts believe that the depot could soon reach capacity if the glut continues much longer. The government says that 83 percent full is the maximum operational capacity of the depot, but some believe that they can still keep operating up to 85 percent. In recent years more pipelines and valves have been installed at the terminal allowing the operators to move more crude around and bypass bottlenecks that limited capacity. All the space in the terminal is already rented out as various operators move some 6 million b/d into or out of the terminal. Given all that activity it is difficult to keep track of how much oil is actually in storage at any one time. Some say that if the terminal reaches capacity and oil flowing into it starts to back up, crude prices would have to undergo another downward spiral.

As the military pressure from the slow government advance on the major ISIL held cities and the steady bombing of ISIL’s positions by several of the world’s leading air forces continues, ISIL is attempting to step up its terrorist attacks as the only means of retaliation it has left. A wave of suicide bombings in central and southern Iraq on Monday killed 15 and wounded 48. The bombings are starting to occur southern Iraq where most of the Shiites live and where most of the oil is produced. One of the deadliest bombings took place 230 miles south of Baghdad targeting members of a Shiite militia unit. Other bombings took place in the oil capital of Basra which has been relatively in the past has been relatively immune from terrorist bombings.