Peak Oil Notes – July 2

July 2, 2015

Despite a rally on Tuesday, New York oil futures closed on Wednesday at $56.69 a barrel, the lowest level since mid-April. London futures closed at $62.01, which was also the lowest in two and half months.  On Wednesdaythere was a major selloff with NY crude falling 4 percent after the IEA reported that US crude stocks gained for the first time in nine weeks and total commercial petroleum inventories increased by 10.3 million barrels just as the summer driving season is beginning. Most of the increase in inventories, however, was due to a 750,000 b/d jump in US imports, which had been delayed due to bad weather along the Gulf Coast the week before last.  Analysts had been expecting another 2 million barrel drop in crude stocks, which helped with the sudden price drop.
 
There are still several major factors behind the weakness in oil prices. The Iran nuclear talks seem to be back on track, which could bring another 500,000 b/d of Iranian oil onto the markets in the next year or so. OPEC reported higher production last month with increased production from Iraq and Saudi Arabia. The Greek debt crisis, which will come to a head with a referendum on Sunday, opens the possibility of Greece’s departure from the Eurozone with unknown but likely negative consequences for the EU’s economy and its demand for oil. China’s economy still shows no signs of a rebound despite several rounds of government stimulus measures.
 
Most analysts are not expecting a sudden price drop such as we saw last winter until the end of the summer driving season in September. US consumption of gasoline is up by 300,000 b/d from this time last year but the increase brought about by the lower prices has leveled off in the last few months.  Many traders, however, expect there will be a major selloff in the fall if OPEC, whose production hit a three-year high in June, continues to pump at current rates and more Iranian oil returns to the market. The markets fascination with the rapid drop in the US rig count seems to be waning as shale oil production, at least for now, seems to be holding its own or only declining slowly. Some are saying the price increases we saw in the 2nd quarter were not justified by market fundamentals.
 
The Iranian nuclear talks seem to be back on track with a new deadline set for July 7th.  The Ayatollah seems to be back on board for a settlement after voicing unrealistic demands last week. Observers are saying that Tehran is now willing to accept a gradual relaxation of the sanctions as various milestones are reached in the contraction of their nuclear programs.  The resumption of falling oil prices and the troubles the Iranians are having with their numerous foreign ventures may be helping bring the talks to a conclusion.
 
The Kurds, who say that Baghdad is only paying them half of what they should be getting from the national oil income, have been increasing their independent sale of oil, which cuts Baghdad out of the picture.  Talks are going on in Libya to reopen several oil fields and the two competing governments seem to be drawing closer together in face of the ISIL threat to take over the country. 

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: geopolitics, global oil production, oil prices