The New York oil market has been quiet this week with futures trading around $93 a barrel while awaiting further news. The weekly stocks report which showed a smaller than expected increase in the US crude inventory sent the markets higher on Wednesday but this was soon countered by new Federal Reserve minutes which suggests that the Fed could slow its bond purchases sooner than expected.
The EIA reported that US oil product demand averaged 20.3 million b/d over the last three weeks – the highest since August 2008. While some of this demand may be due to cheaper gasoline prices for American motorists, the 8.8 percent jump in distillate demand is clearly due to higher exports as there are no signs of the US economy rebounding sufficiently to consume such an increase. Distillates stocks fell by 4.6 million barrels last week in contrast to analysts’ forecast of only 0.28 million. US refining increased slightly last week as refineries came back online from fall maintenance.
In London oil prices were more volatile this week with futures closing on Wednesday at $108.06. Continuing unrest in Libya which is exporting minimal amounts of oil is supporting the London markets.
Most attention continues to be focused on the nuclear negotiations with Iran which resumed on Wednesday. So far there has been no word on progress, but both sides are expressing cautions optimism. The CEO of Iran’s state-owned gas company reported this week that his company has declared bankruptcy – one more indication of the havoc the nuclear sanctions are imposing on Tehran’s economy. Should a preliminary deal be reached in the near future, most analysts are talking about a sharp drop in crude prices due to increased Iranian exports.
At least 60 were killed and dozens more injured in a wave of bombings across Baghdad on Wednesday. We are starting to get details on what prompted the hasty evacuation of hundreds of foreign oil workers from Basra last week. It seems that Shiite workers tried to put up posters of the Prophet Mohammed’s grandson in the Schlumberger compound as part of the Ashura holiday celebration. When a security officer ripped them down, a riot started which wrecked the camp which then prompted Schlumberger and other western companies to evacuate their employees.
The Iraqi government is downplaying the incident, but the loss, even if temporary, of hundreds of foreign oil workers from the Basra area where most of Iraq’s oil is produced is a serious blow. This incident could easily be a harbinger of more problems ahead as the death toll rises and passions intensify.
There is no sign that things are improving in Tripoli after a lengthy gun battle between militia groups last week in which dozens were killed. The citizens of Tripoli staged a three-day general strike this week and some militias were ordered out of the cities, but few are moving. For now, being paid more by the government than other kinds of employment to stand around with an AK-47 pretending to be “security” is simply too attractive to Libyan youth. This situation continues to spiral out of control taking the possibility of increased Libyan oil exports with it.