Prices and production
After falling from $83 to $73 a barrel in January, oil prices reversed this week and climbed back to close at $76.98 on Wednesday. As usual, perceptions as to the course of the US and global economy and the strength or weakness of the dollar, rather than the fundamentals of the oil market, were the predominate factors driving prices.
The EIA reported a 2.3 million barrel increase in US crude inventories and refinery utilization falling to 77.7 percent. US demand for oil products remains weak – some 2 percent lower than last year.
The stockpile of oil stored on anchored tankers is shrinking as the price gaps between near and more distant months have been narrowing, making such ventures less profitable for speculators. One report says the oil in floating storage may now be only half the 90 million barrels that were being stored last April. On-shore crude inventories in the OECD countries are now back in their normal range.
After many months of a ceasefire and increasing oil production in Nigeria, militants bombed a key pipeline shutting in an unknown amount of Shell’s production in the Niger Delta. A pair of suicide bombers killed scores of Shiite pilgrims in Iraq this week serving as a reminder that the country is still far from stable and that major increases in oil production may be difficult to achieve.
The IEA’s chief economist, Fatih Birol, told Reuters that the Agency believes the demand for oil from the OECD countries will never return to the levels seen in 2006 and 2007. Birol believes that gradually declining OECD oil consumption may serve to keep the lid on prices as Chinese and Indian demand increases.
Asian Demand
Newly released surveys show Chinese and Indian manufacturing continued to expand rapidly during January. Industrial activity in Korea and Australia also picked up, in part feeding off increased demand from Beijing. China remains on track to surpass Japan and become the world’s second largest economy, possibly this year. China is expected to continue importing record amounts of iron, copper, and oil this year. Last year China consumed 7.5 million b/d of oil as manufacturing rebounded.
Russian Economy: Un-BRIC-like during 2009
Russia’s gross domestic product sank 7.9 percent last year, the largest decline on record and apparently the steepest among the world’s larger economies. The catalyst behind the collapse was the tanking price of oil, followed by tighter credit, lower industrial production and shrinking household incomes. The third quarter saw Russian GDP down 8.9 percent compared to Brazil shrinking just1.2% while China and India were both back in high gear (+10.7% and +7.9%, respectively). The Russian government forecasts a snap-back to 3.1 percent growth this year.
