1. Oil and the financial crisis
Oil prices continue to be dominated by the prospects for a federal bailout of financial institutions that has been under discussion for nearly a week. After recovering sharply from a drop to $90 a barrel last week, oil continued to climb on Monday in the belief that Congressional passage of a $700 billion relief program would eventually increase the demand for oil. By Tuesday, however, so many objections had been raised to the Administration’s proposals that oil prices began to slip again.
There was some brief excitement on Monday when the expiring October oil futures contract briefly surged $25 to $130 a barrel as holders of short positions were forced to buy spot oil to cover their expiring contracts. The November contract, however, never got much above $110 and closed on Wednesday at $105 a barrel.
The Wednesday US stocks report showed US refineries operating at 66 percent of capacity, the lowest since records began in 1989. Crude imports were only 7.1 b/d, the lowest since January 2000, but gasoline imports were above normal at 1.2 million b/d.
While crude stocks dropped by only 1.5 million barrels due to low refinery operations, gasoline stocks dropped 5.9 million barrels to 179 million and distillates fell 4.2 million barrels. US gasoline inventories are now at their lowest level since 1967.
US petroleum consumption over the last four weeks was down 5 percent over last year and gasoline consumption down 3.5 percent. Some of this can be attributed to power outages and shortages rather than lack of demand.
Tanker tracker Petrologistics reports that September OPEC production will be 800,000 b/d lower than in August which was an unusually high month.
2. In the wake of the Hurricanes
As of Wednesday, 800,000 b/d of Gulf oil production was still shut-in and five refineries in Texas and Louisiana with a processing capacity of 1.2 million b/d were still closed. Eight other refineries are running at reduced rates. In the last month refinery closures have resulted in 44 million barrels of oil not being refined in the US. Over 20 million barrels of gasoline and 14 million barrels of distillate have not been produced.
As a result of reduced production, shortages have worsened across the Southeastern states with the most serious problems being reported around Atlanta and Nashville. Tough anti-gouging laws in many states have kept prices from rising excessively. The EIA says that the spot shortages in the Southeast will likely continue for several weeks. Some analysts believe the situation could get worse as it takes two or more weeks for reduced oil production and refining to make its way through the supply chain.
