Peak oil notes – Oct 30

October 30, 2014

After trading quietly on Monday and Tuesday at around $81 in New York and $86 in London, crude prices closed higher on Wednesday after traders noted that the increase in US crude inventories last week was slowing down in comparison to the previous three weeks. This move left NY crude at $82.20 at the close on Wednesday and London crude at $87.12. The increase came despite an announcement from the Federal Reserve Wednesday afternoon that it plans to wrap up its bond-buying program. The price jump was helped by a new consumer sentiment survey which says that the steep drop in gasoline prices has left US consumers more optimistic about their economic future than at any time in the last seven years.
The weekly stocks report showed refining down slightly last week as the fall maintenance season draws to a close. US crude stockpiles rose only 2.1 million barrels as compared to the 3.1 the markets were expecting. There were, however, larger-than expected drawdowns of petroleum products with a 1.2 million barrel drop in gasoline stocks last week and a 5.3 million barrel drop in distillates.
A war of words has broken out over the significance of the lower oil prices. OPEC’s Secretary General told the media that the markets are only oversupplied by about a million b/d or about 1 percent of consumption. He expects that OPEC oil production will remain about the same next year.
The Secretary General also took a swipe at the US shale oil industry by claiming that 50 percent of US shale oil production will soon be off the market at current prices. The CEO of Continental Resources, a major shale oil producer, has been running around telling interviewers that prices are nowhere near low enough to curtail US shale oil production and that it would take another 20 percent drop before he would cut back on drilling. The CEO’s of other US shale oil companies echoed these sentiments that all was still well in the US shale oil business.
Goldman Sachs cut its price forecast for the 1st quarter of 2015 saying that WTI could fall as low as $70 a barrel and Brent as low as $80. Barclays also cut its forecast for next year saying that Brent will average $93 and WTI $85.
Despite much pessimism about the state of the Chinese and Indian economies, Platts reported that Beijing’s apparent demand for oil in September was 10.35 million b/d or 7.4 percent higher than during September 2013.  Much of this increase however may have gone into recently opened refineries for sale as oil products abroad. The Chinese have always been very good at taking advantage of low prices when they do their oil buying. So much oil is moving from the Middle East to China in recent weeks that a tanker shortage is developing along the route.
The turmoil in the Middle East and North Africa continues apace. Some are saying that a détente is growing between Iran and the US as both see ISIL as the major threat to the region. Whether this will lead to a settlement of the nuclear issue in the next four weeks remains to be seen.  The downside to this détente is the Saudis and their Gulf Arab brethren see Iran as more of a threat than ISIL and are worried about where US policies will lead.
There is still no sign of a natural gas deal between Russia and Ukraine. 

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: oil prices, shale gas production