After closing below $40 a barrel on Tuesday, oil prices rebounded on Wednesday following the EIA report that US gasoline stocks fell by 3.3 million barrels vs. an expected 200,000. New York futures closed at $40.83 and London at $43.10. The rationale for the move was that the US gasoline glut during the summer driving season might not be as bad as has been portrayed.
Some analysts believe the rebound will be short-lived as US crude stocks continued to climb; total US commercial petroleum products were up by 2.1 million barrels last week. Other than the surprise gasoline draw, there was little news to justify a price increase. Canadian tar sands production should soon be back to normal; the summer driving season will soon be over, and the refinery fall maintenance program which cuts demand is about to begin. Despite last week’s drop, US gasoline inventories are now 238 million barrels, 10 percent higher than at this time last year. The general market sentiment seems to be that oil prices will continue to fall with some seeing a bottom at $35 and some at $30.
US crude imports last week were up by 300,000 b/d from the week before last. Over the last four weeks, crude imports have been running 10 percent higher than during the same period last year. Given the talk about the lack of storage around the world, it would not be surprising if excess crude inventories were not being dumped in the US as the only place which still has excess land-based crude storage capacity.
The Iranian government has approved the new oil contract which is supposed to attract $50 billion in new foreign investment each year. The reactions of the oil companies to this contract will be important to Iran’s future.
There is much disagreement as to what is happening in Libya. Although the merged National Petroleum and the facilities guard force which controls the major export terminals keep saying they now have the capacity to export 600,000 and even 900,000 b/d, most observers doubt this will happen. Much of Libya’s oil production is under the control of local tribes who are not party to the new agreement and want to hold on to the oil as a bargaining chip. Some believe that attacks on the export terminals by Islamic State forces in the past year may have reduced export capacity to as little as 100,000 b/d.
At the request of the UN-backed Tripoli government, the US has stepped up air strikes on the remaining Islamic State forces in Sirte. In the past week, there have been reports that much of the IS’s support is from former Gadhafi supporters who have nowhere else to turn in the post-Gadhafi world.
There was another attack on Shell oil facilities in Nigeria this week. As usual, nobody is reporting just how much damage has been done to oil production. At the beginning of the year, oil production was about 2.2 million b/d, but this is now believed to be down around 1.3 million due to the insurgent sabotage of oil pipelines and other facilities.
The food situation in Venezuela has become so desperate that the government has resorted to forced agricultural labor. A new decree says that public and private sector employees must work in the fields for at least a 60-day period which may be extended.
Russian oil production climbed 1.8 percent in July to 10.85 million barrels. This is the 24th consecutive month that Russia has posted year-on-year gains in its oil production.
