Peak Oil Notes – Oct 23

October 23, 2014

New York oil futures traded around $82 a barrel this week until Wednesday’s stocks report showed an unexpected 7 million barrel jump in US crude stocks. The jump resulted in a nearly $2 decline in the futures market to a close of $80.52 a barrel, the lowest settlement since June of 2012.  London’s crude, which had been trading around $86 slid $1.51 on Wednesday to a close of $84.71.  Refinery maintenance is in full swing with utilization down to 86.7 percent, the lowest since March, as changeover to winter blends continues.  Refinery maintenance, the primary cause of the crude inventory build, is now at its peak, but should be over in a few weeks. Gasoline inventories fell last week due to less production, but distillates increased as demand for heating oil and diesel is currently weak.
US natural gas futures fell to a new 11-month low on Wednesday as traders are expecting that Thursday’s report will show that a larger than normal amount of gas was injected into storage last week. Mild weather, with minimal demand for heating gas, is expected to continue across the US for the next couple of weeks and long-range forecasts are predicting that really cold weather will not settle in across the US until January.
The controversy over whether the US should resume unrestricted crude exports continues with a new GAO report saying that US oil exports could lower US gasoline prices. Oil producers who want the ban lifted hope to benefit from higher oil prices overseas, while refiners who can buy cheaper US oil and make more money by selling the products overseas oppose having the ban lifted. The GAO says that removing the crude export restrictions would raise US production by 130,000-3 million b/d between 2015 and 2035 which would lower world crude prices and bring down domestic gasoline prices. The GAO seems to be highly optimistic about the prospects for US shale oil production during the next 20 years.
The official pace of China’s economic growth which was 7.3 percent in the third quarter was the lowest since 2009.  China’s economic boom has been going for 32 years which is several times longer than booms normally go on in other countries. To deal with the slowdown, Beijing seems to be turning to large, perhaps unnecessary, infrastructure projects to keep the economy going in the face of declining demand for housing and exports. China’s oil imports, however, seem to be, at least temporarily, on the rise. This is likely due to a combination of the government taking advantage of low crude prices to fill its strategic petroleum reserves and Chinese refineries running at record levels processing bargain crudes.
As yet there has been no resolution of the Russia-Ukraine natural gas dispute, which raises the possibility of the confrontation continuing into the winter threatening the EU’s natural gas supply.
India has discontinued price subsidies on diesel, allowing the redirection of billions in government spending to other projects. The government is trying to streamline India’s economy to make it more attractive to foreign investors.
Shell says it has concluded agreements to sell all of the Nigerian oil assets it put up for sale last year. Shell has been trying to rid itself of the unending problems of oil theft and sabotage of pipelines that are endemic to producing oil in Nigeria. It is doubtful that other investors, including local ones, will be any more successful than Shell has been in combatting oil theft.
The Islamic State continues to make progress against government forces in Anbar province, threatening not only the capital, but eventually oil production in southern Iraq. 

Tom Whipple

Tom Whipple is one of the most highly respected analysts of peak oil issues in the United States. A retired 30-year CIA analyst who has been following the peak oil story since 1999, Tom is the editor of the long-running Energy Bulletin (formerly "Peak Oil News" and "Peak Oil Review"). Tom has degrees from Rice University and the London School of Economics.  

Tags: Chinese economy, natural gas prices, oil prices