Developments this week
Volatility of crude prices picked up this week. After climbing from circa $81 a barrel to close above $83 on Monday, prices took a 4 percent tumble on Tuesday when Beijing announced an increase in interest rates. On Wednesday, the markets decided that higher Chinese interest rates would not really slow Beijing’s demand for oil by that much, so prices recovered by $2.28 a barrel to close at $81.77.
If there is a lesson in all this, it seems to be that the global demand for oil remains fairly strong. After climbing into the low $80s from the mid $70s in late September, prices have stayed there for nearly a month. Some continue to say that the move into the $80s has more to do with the weak dollar than supply and demand.
The weekly US stocks report showed total commercial petroleum inventories falling by 2 million barrels last week. These commercial petroleum stocks have been slowly falling from record highs since mid-August. Analysts and the API were expecting an increase of over 2 million barrels in crude stocks which turned out not to be the case.
The EIA is forecasting a slow shift in US demand away from gasoline, which is sensitive to personal income and automobile efficiency, to middle distillates which moves with economic activity. In the last 4 to 5 years US exports of middle distillates have nearly tripled as demand for these products in Europe and Latin America has increased rapidly.
Forecasters are saying that the hurricane threat to Gulf oil facilities has faded to zero.
Saudi Oil Minister al-Naimi told reporters in Riyadh that “easy oil” is not over as the kingdom still has 88 billion barrels of oil in its Ghawar oilfield and more in other fields. While this statement made headlines, the fine print of his remarks suggests that the kingdom’s production will be limited by the desire to extract as much of the remaining oil from their fields as possible, even if this means slowing production to make the most effective use of water flooding. Whether they will ever get to the 12 million b/d which al-Naimi says is their total productive capacity is now more of a question.
The strike in France
The dispute over pensions in France has escalated with millions taking to the streets in opposition to the government’s effort to increase the retirement age to 62. All 12 of France’s oil refineries have been shut down and some 4,000 filling stations — a third of the total — are out of fuel. Although the government maintains a 3-month supply of gasoline in reserve, strikers are struggling with riot police to block access to these reserves. Air travel is significantly reduced and natural gas supplies are threatened.
The Unions with the support of much of the French populace are attempting to sway sentiment in the French legislature prior to a vote later this week. If these votes do not settle the issue, and the strikes continue, then the oil shortages will soon have a major impact on France’s economy and perhaps have wider implications for world oil prices.
