Peak Oil Notes – Dec 10

December 10, 2015

There were a lot of surprises in this week’s US stocks report. Crude inventories fell by 3.6 million barrels breaking a run of ten straight weeks of builds. This news initially sent oil prices higher until analysts dug more deeply into the report. Crude stocks along the Gulf Coast were down by 7.3 million barrels, which is normal for this time of year, as refiners began ridding themselves of as much crude as possible in order to avoid year-end taxes imposed in the region.
 
Of more interest to traders was the increase of five million barrels in distillate stockpiles at the time of year when they usually drop due to heating demand. When this information was coupled with a report that there is little room for distillate storage left in the EU which usually imports excess US distillate stocks, heating oil prices plunged taking crude prices with them. Another part of the inventory puzzle is the 53 oil tankers carrying 31.5 million barrels of crude that currently are anchored off the US Gulf Coast waiting for a chance to unload.  All this is beginning to suggest that Goldman Sachs’ fears that a shortage of storage capacity is developing in some parts of the US. Hence the talk of $20 oil.
 
At the close Wednesday Brent crude was down 15 cents at $40.11 a barrel after touching a near seven-year low of $39.75. The London market has now lost $3.75 or 8.5 percent since OPEC decided to maintain production levels last Friday. New York futures closed down 35 cents on Wednesday at $37.16.
 
The general market sentiment is that oil prices will continue to fall and are likely to test to the 2008 lows when oil prices closed at $36.61 on Christmas eve.
 
Unseasonably warm weather has forced US natural gas for January delivery down to just above $2 per million BTUs. This is the lowest price for a January-delivered futures contract in the last 17 years.  In October and November, the number of gas-weighted heating degree days was about 20 percent less than normal. The National Weather Service sees warm weather persisting across much of the US until at least February.
 
There has been much news out of China this week. Beijing was forced to call its first “red alert” for air pollution which forced the city to shut its schools, cut driving in half, and close many smoke-producing factories and construction projects. In the past local authorities have been reluctant to issue “red alerts” in advance of the smog because of the toll it takes on economic activity, but increasing public exasperation with the government’s inability to clean up the air is bringing about policy changes.
 
China’s imports and exports continued to fall in November underlining the slowdown taking place in manufacturing and construction. The one surprise in the new Chinese data was the 68 percent year-over-year surge in oil product exports as refiners stepped up efforts to unload oil products inventories that can’t be sold at home. Chinese refiners must be offering some good prices and are obviously causing problems for existing East Asian refineries.
 
Despite the economic slowdown, China’s crude imports were up 7.6 percent year-on-year in November to 6.68 million b/d. For the first 11 months of 2015, crude imports have averaged 6.58 million b/d, up 7.9 percent over 2014. As domestic consumption does not seem to be that strong, much of this increase is going in strategic reserves or is being exported as products.

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, oil prices, oil production