Peak Oil Notes – June 25

There was little change in oil prices so far this week as New York futures continued to trade around $60 per barrel and London futures around $64.  The same factors we have seen for the past 10 weeks – oversupply, the Greek debt crisis, the Chinese economy, and the geopolitics of the Middle East – still obtain.  The weekly US stocks report showed US crude inventories dropping by an unexpectedly large 4.9 million barrels, but much of this was likely caused by tropical storm “Bill” which held US crude imports last week to 2 million barrels below the previous week. The drop in crude stocks, however, was offset by a climb of 3.8 million barrels in stocks of petroleum products.
 
The 700,000 barrel increase in US gasoline stocks was particularly troubling to traders as this was a second weekly increase in a row at a time when the US summer motoring season is supposed to start eating away at gasoline surpluses.  This deviation from expectations has started a debate among analysts as to just how strong the US economy and its demand for petroleum products really is.
 
The Greek debt crisis continues despite optimistic statements that a settlement is in sight. Athens floated new proposals on Monday, but byWednesday these did not seem to be going anywhere. Germany is insisting that the Greek Parliament pass the necessary legislation by Monday in order to receive the loans necessary to avoid a default on the IMF loan due next Tuesday, 30 June.  This long-running crisis sees to be coming to a head and we should know in the next couple of weeks what will happen. Numerous respected commentators have said that a Greek debt default and exit from the Eurozone will lead to a major economic crisis for Europe and likely will lower its demand for oil.
 
The EU extended economic sanctions on Russia until the end of January, as there has been no sign that Moscow is making any effort to settle the Ukrainian situation by cutting support to the rebel forces.  Russia’s economy is having a bad week with the ruble weakening again.
 
The Iranian nuclear negotiators remain optimistic with the ostensible deadline to conclude a deal less than a week away. Once again we are hearing that the 30 June deadline for a preliminary agreement may be extended.  Iran’s Supreme Leader, the Ayatollah Khamenei, did not help the situation this week with pronouncements that seem to undercut several of the key tenets of the deal that is being crafted. The Ayatollah is insisting that the economic sanctions be lifted immediately and that nobody has the right to poke into past Iranian efforts to develop nuclear weapons, which are considered state secrets.  The Ayatollah’s remarks likely reflect debates going on within the Iranian government.
 
New data shows China’s economy is still not doing particularly well despite many stimulus programs the government has initiated.  If Beijing has finished importing oil for its strategic reserve for a while, we could be seeing a drop in its crude imports this summer.
 
In the wake of the Papal encyclical saying that we had better do something to restrict the use of fossil fuels or face a very bleak future, two new British reports have been released seconding the Pope’s sentiments. Britain’s leading medical journal, the Lancet, published a story about all the bad things that are going to happen to public health as flood, droughts, heat waves, and other extreme weather phenomena increase over the rest of the century. The British Foreign Office funded a new study concluding that society will collapse by 2040 due to catastrophic food shortages.