It has been one of the more event-filled weeks in recent memory, but so far oil prices have changed little with New York futures continuing to trade between $51 and $53 a barrel and London between $57 and $59. Wednesday’s close found NY oil futures at $52.60 and London at $57.94. The announcements that there have been settlements in the Greek debt crisis and the Iranian nuclear situation have left the markets confused as to what happens next. Despite the supposed settlements there are still numerous obstacles to be overcome before Iran starts shipping larger quantities of oil again and Greece is firmly established as a solvent member of the Eurozone. While in theory more Iranian oil should lower oil prices, it is still difficult to determine whether this will happen in weeks, months, or even at all. The end of this Greek crisis should help oil prices, but a bailout is still weeks away and the country is flat broke.
China’s stock market crisis, which ultimately could have more impact than the Greek or Iranian situations, seems to be back with us despite the unprecedented efforts by Beijing to stabilize prices. The government says the country made its growth goal of 7 percent in the last quarter, but considering panic going on in China’s leadership, this number should be taken with a big grain of salt. Anything less that the targeted growth number would likely set off another price plunge. The Chinese stock crisis looks as if it may be with us for a while.
The oil futures markets are becoming a bit more sophisticated at reading government reports. The EIA said on Wednesday that last week US crude stocks went down, which normally would send prices higher. However, the government also said that the total count of crude and products had climbed to a level not seen in decades. The markets got the message, that it does not matter whether the stocks are crude or products, and prices went down a bit. Most forecasters are still saying there is too much oil being produced and that the outlook for increased demand in China, the EU, and the US for the immediate future is not good.
The EIA is convinced that US shale oil production has finally started to drop. This week’s stocks report has production in the lower 48 down by 66,000 b/d. The trouble is that with today’s reporting systems, it takes six weeks and in the case of Texas four of five months before we really know what is going on. The EIA is trying to fix this situation as it is distorting policy and resulting in much confusion about the current energy situation.
Discussion is starting as to whether we are actually getting to peak oil despite the current glut and falling prices. Lower oil prices have resulted in dramatic drops in investment to find and develop new supplies. While Iraq and the Gulf Arab states may be increasing output for now, the rest of the organization is not doing as well. China, Russia, and the US may be reaching peak this year, although some argue that there will be a production surge when prices rebound.
The Middle East roils along. While most of the discussion centers on what Iran will do with its new-found wealth, the humanitarian situation in Yemen is on its way to becoming one of the worst in living memory. Iraq is having a 50 degree C. heat wave today, yet another reminder that global warming is slowly ripping the Middle East apart with rapidly falling water supplies and for those who can afford it more oil being kept at home to power air conditioning.