Oil prices were up on Tuesday after OPEC released a feel-good report saying that all would be well by 2017. Profit taking, short covering, and technical indicators helped the Tuesday surge. On Wednesday, reality set in after the EIA reported that US crude stocks fell less than expected, but that total US commercial crude and products inventories were up by 7.1 million barrels, setting new records. The crude glut of the last two years is turning into a product glut. Prices were down more than 4 percent on Wednesday, closing at $44.75 in New York and $46.26 in London.
China is not helping the product glut by increasing its product exports by 38 percent year over year in June. So far this year China’s refined fuel exports are up 45 percent and diesel exports have quadrupled. Beijing has been supporting world oil prices in the past year by buying up and refining more oil than it can consume and store. The remainder is being dumped on the export market, presumably at bargain prices as much Chinese crude was purchased at rock bottom prices last winter and Beijing has numerous modern and efficient refineries which give it a competitive edge. Beijing, however, took a hit this week when the world court in The Hague said China does not own all the South China Sea just by saying it does.
In addition to OPEC, the IEA and EIA were heard from this week. The IEA reported that world crude stocks were up by 13.5 million barrels in May and that floating storage is at the highest in seven years. The Agency also reported that global oil supplies rose in June to 96 million b/d after outages curbed production in May. OPEC’s production was up 400,000 b/d in June to an eight-year high of 33.21 million b/d. Gabon’s rejoining of OPEC helped a bit. The Saudis were up to a near-record high of 10.45 million b/d and Nigeria did a little better. The outlook for Nigeria and Venezuela, however, is problematic.
Analysts are saying that the chances for the much-hyped return to a “balanced market” later this year do not look so good. Bloomberg has noticed that the weekly API quick and dirty figures that come out the night before the EIA’s official legally mandated survey have been wildly wrong of late, sometimes having inventories millions off in the wrong direction from the actual numbers. In some cases this has been whipsawing prices as speculators followed the API prices only to have to reverse course when the EIA numbers were released.
The “good guys” are closing in on Islamic State bastions in Libya and Iraq. Some are saying that ISIL may be forced to scatter into small terrorist organizations around the world as the combined military might of many nations including the US, the EU and Russia is turned against their strongholds. In Libya, there seems to be progress in merging the two national oil companies, and perhaps opening the four major export terminals. Some analysts are saying that without control of the oilfields, many of which are in the hands of local militias with their own agendas, the merger of the two oil companies is meaningless.
The IEA says that oil production in Venezuela fell to a 13-year low in June – down to 2.18 million b/d, some 240,000 b/d lower than last June. Further production declines are expected as the economy and society collapse. This week the government turned all food distribution over to the Army. At least the soldiers will be well-fed.
