New York futures prices closed Wednesday at $87.88 which is just about the middle of the recent $85-90 trading range. London oil, which is more sensitive to the nuances of the EU’s financial crisis and the upheavals in the Middle East, has been more volatile during the last month closing at $108.81 on Wednesday. The weekly US stocks report showed a 7.9 million barrel increase in gasoline inventories last week, the largest one-week increase in 11 years. This unexpected jump sent gasoline futures in NY down 5 cents a gallon to a three week low of $2.64, pulling crude futures down too, despite a 2.4 million barrel decrease in crude stocks.
US refineries have rebounded from a series of mishaps including the effects of Hurricane Sandy and are now producing at over 90 percent of capacity. With US gasoline demand generally weak, some analysts are predicting lower gasoline and oil prices ahead as the markets seem to be adequately supplied. The average price for a gallon of gasoline is down by 9 cents in the last month.
US natural gas futures, which have fallen by nearly 50 cents per million BTU’s in the last two weeks, rebounded by 16 cents per million on Wednesday after a long-awaited EIA report on natural gas exports was released. The report concluded that there would be a net benefit to the US economy from natural gas exports that would more than offset the effects of higher prices that would result.
On Wednesday, the EIA issued a long-term report predicting that US crude production will reach 7.5 million b/d by 2019, up from the 6.5 million b/d produced in September.
The various crises in the Middle East continue to deteriorate. The Syrian Army is clearly on the defensive as the rebels move ever closer to Damascus. Activity at Syrian chemical weapons depots led Washington to warn the Assad government not to use these weapons against their own people or face Western military intervention. There are reports that Assad and his family are negotiating for asylum in Venezuela or Cuba where he presumably would be safer from extradition from war crimes than he would be in Russia. Moscow has economic and cultural ties with Syria that go back decades which would be endangered should Assad end up in Russia.
Riots in Cairo have continued this week and have spread to other Egyptian cities as Islamic supporters of President Morsi battled those seeking his resignation. While there is no immediate threat to oil exports from this turmoil, should it grow in coming weeks, oil shipments through the Suez Canal and pipeline could be endangered.
A deal seems to be in the works between the Kurds in Iraq and the Turkish government to build an export pipeline for Kurdish oil to Turkey, bypassing the existing northern export line which is controlled by Baghdad. The Kurds are already talking of rapid increases in the 250,000 b/d they should export next year. Kurdish Prime Minister Barzani said these exports could hit 1 million b/d by 2015 and 3 million b/d by 2020.