Prices and production
Oil prices jumped briefly above $72 a barrel on Monday on expectations that demand would revive soon, hovered around $71 on Tuesday and Wednesday, and then settled at $71.92. A weak dollar which reached $1.44 vs. the Euro, the lowest since last December, is helping maintain oil prices. The weekly stocks report showed US crude inventory up by 1.7 million barrels and gasoline stocks down a bit. US demand continues to be weak.
OPEC’s production is seen as increasing by 45,000 b/d during July, the fourth month of increases according to a survey of analysts. OPEC will not meet again on prices until September 9th. With oil prices showing no signs of falling for the moment, several OPEC members are saying that production cuts will not be necessary at the next meeting.
Many analysts continue to maintain that the fundamentals we see today do not support $70 oil. But as long as investors remain optimistic, the equity markets remain strong, and the dollar keeps falling, oil prices could well remain firm.
The Chinese report that their oil imports via tanker were 26 percent higher in July than in 2008. Beijing’s imports dropped significantly last summer after an unprecedented increase in the months prior to the Olympics. While the Chinese claim their economy currently is growing at 8 to 9 percent, thanks to their $586 billion stimulus program, many western observers remain skeptical and believe that we may be seeing a financial bubble rather than real economic growth in China.
The Obama administration is considering joining European governments in imposing an embargo on the 40 percent of refined oil products that Iran must import. The idea is to up the pressure on Tehran to negotiate and to quiet the Israelis who keep talking about a military strike on Iranian nuclear facilities. Given that Iran has many friends with refineries such as China, Russia, and Venezuela, it is difficult to foresee how effective such an embargo would be.
Another Warning
Fatih Birol, Chief Economist at the IEA, warned in an interview with The Independent newspaper (UK) that “many governments appeared oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years.” Birol sees a supply crunch within the next few years that will jeopardize hopes of an economic recovery. He added that the market power of the very few oil-producing countries that hold substantial reserves of oil – mostly in the Middle East – would increase rapidly as the oil crisis begins to grip after 2010. Said Birol, “I’m not very optimistic about governments being aware of the difficulties we may face in the oil supply.”
[A minor semantic point: the Editors note that ASPO-USA and a number of commentators concerned with near- and mid-term oil supply constraints disagree with the verbiage that we’re “running out of oil.” Rather, we’ve run out of the ability to continue growing supply.]
