Peak Oil Notes – June 18

Despite considerable volatility in the oil markets on Wednesday prices have been little changed so far this week.  New York crude futures are still trading close to $60 a barrel as they have been for the last two months. London futures have been slowly closing the price gap with WTI having falling from around $70 a barrel in early May to close on Wednesday at $63.87. Yesterday’s volatility started with the oil markets expecting that  a growing US economy would lead to more demand for oil in the US. There was also the expectation that the EIA’s weekly estimate of US oil production would show it falling. The weekly oil stocks report was a disappointment. Although the US crude inventory was down by 2.7 million barrels, gasoline stocks rose by 460,000 barrels and the inventory at Cushing, Okla. actually went up.  Total US commercial inventories – crude + products — were up by 2.7 million barrels last week, which did not suggest a surge in demand.  To make matters worse, the EIA reported that oil production in the lower 48 states was up by 10,000 b/d although Alaskan production was down by 31,000.
 
European oil trading is being dominated this week by concerns that Greece will soon default on its debts leaving several EU countries, the EU central bank and the IMF with millions in worthless loans. Greece, however, expects to eventually pay off its commercial loans as to default on the banking community would make it very difficult to continue to maintain relationships with foreign banks.  There is concern that a Greek default would trigger a series of consequences leading to lower demand for oil.
 
Another factor moving oil prices this week was the possibility that the US Federal Reserve would start increasing interest rates, which would bring downward pressure on prices.  Wednesday afternoon the Fed announced that it was likely to increase rates by the end of the year; however, the tone of the statement led traders to believe that a rate increase was not imminent nor would there be much of an increase.
 
ISIL and al Qaeda are having a bad week. Kurdish forces in Syria captured a key town from ISIL on the Turkish border cutting the group’s main route for smuggling goods and people in and out of Syria. US air strikes supported the successful attack. Fighting near the Golan Heights is threatening to involve Israeli forces in the Civil war for the first time as there are concerns that radical Jihadists may start slaughtering Druze tribesman – good friends of Israel. The Assad government’s use of chlorine gas on captured towns is leading to calls for the US to do something about it.
 
The recent Turkish election could lead to major policy changes in Ankara’s policies towards Syria.  There are fears that the collapse of the Assad government would lead to ISIL taking over the country or that the growing Western support for Iraqi and Syrian Kurds and their military successes could lead to renewed efforts to form a single Kurdish state including parts of present Turkey.
 
The UN-sponsored peace talks on the fighting in Yemen do not seem to be going anywhere as Saudi bombing of Yemen continues apace.