Peak Oil Notes – Mar 19

Oil prices fell steadily this week until Wednesday afternoon when the Federal Reserve announced that it preferred a more gradual path to normalizing interest rates. This news sent the oil markets up by five percent from the lows of the day. At one point before the announcement New York futures were trading as low as $42.03 a barrel, a six-year low, but then leaped up to close at $44.88.  London oil traded as low as $52.65 before rebounding to close at $55.91 after the Fed statement. The dollar also fell after the announcement. As this news has little to do with the oil supply situation, the price rebound was short lived and by Thursday morning prices were falling again.
 
Weakness earlier on Wednesday came largely from the weekly stocks report, which showed US crude inventories increasing by 9.6 million barrels.  Stocks at Cushing, Okla. increased by 2.9 million barrels to 54.4 million barrels, the highest level on record. Although the EIA said last fall that Cushing has a working storage capacity of 70.8 million barrels, suggesting that it still is far from full, the financial press continues to run stories about the US running out of storage capacity.  A jump in crude imports of 700,000 b/d last week over the previous week clearly contributed to the large increase in stored crude.
 
Some analysts, however, are saying that much of the worldwide oil glut is ending up in US storage tanks, as this is the only place with much spare on-land storage capacity.  If US imports continue strong, the 15 million barrels of storage capacity remaining at Cushing could be used up rather quickly if the weekly stocks growth continue to show anything like what we witnessed last week.
 
However, growth in US crude production is expected to end in the next few months. The EIA now is saying that US shale oil production will show little growth between March and April 2015.
 
The Iranian nuclear talks, which are likely to have considerable impact on where oil supplies go later this year, resumed this week. Late word from the participants says the Iranians are optimistic that that an agreement can be concluded soon, but that the Americans not so sure as some tough issues remain.
 
The political environment surrounding the talks is more uncertain with the victory of Prime Minister Netanyahu in the Israeli elections on Tuesday. Netanyahu and many in the US Congress are opposed to the kind of agreement they see emerging from the talks and would prefer to continue the sanctions until the Iranians completely give up their capability to enrich uranium — which is unlikely to happen. There has been much discussion in the past week as to how fast Tehran could bring another 1 million b/d of crude to the world markets.  The conventional wisdom is that it would take several months to increase production by that much.