Category: Peak Oil Review

It was a volatile week, with New York futures starting out at around $43 a barrel on Monday, climbing to $47.50 on Thursday and then falling to close at $45.88 on Friday. The major event last week was the EIA status report, which came out on Thursday, reporting a near-record fall in the US crude stocks of 14.5 million barrels from the week before last. This was the largest weekly drop in 17 years and set off a short-lived buying frenzy. Traders ignored the impact of tropical storm Hermine which was thrashing around in the Gulf that week, closing production platforms and delaying tanker arrivals along the Gulf and East Coasts. The EIA reported that US crude imports were down by 12.6 million barrels from the week before, and that US refineries were running at 93.7 percent of capacity to satisfy US gasoline consumption demand over Labor Day. By Friday, traders realized that the crude drop was likely a one-off event and not the beginning of a trend.

The struggle between fundamentals and speculators’ dreams of much higher prices continued last week with oil futures falling through Thursday and then rebounding on Friday to close at $44.44 in NY and $46.83 in London, down about $2.50 for the week. The fundamentals include growing stockpiles, increasing US and Canadian rig counts, and fears that US interest rates will be going up shortly which will lead to a stronger dollar and lower oil prices.

Oil futures fell some 3 percent in New York and 2 percent in London last week, settling at $47.64 and $49.92 respectively. The markets have become volatile of late with traders reacting to nearly every API or EIA report and every utterance from the Saudi or Iranian oil ministers. Last week the markets were pressured by numerous comments pro and con the possibility of an oil production freeze next month; a jump in Chinese diesel exports; comments by Federal Reserve Chair Janet Yellen that there could be a price-depressing rate increase sooner-rather-than-later; increased exports from Iraq via Kurdistan; the possibility of a ceasefire in Nigeria; sluggish US and Chinese economies; and a jump in US crude and oil product inventories.

Oil prices climbed another $3 a barrel last week as traders continued to hope that not only will OPEC and Russia agree to a production freeze next month, but that it will eventually result in the elimination of global oversupply and reduce global stockpiles to a normal level. The week closes with New York futures at $48.52 and London at $50.88.

Oil prices climbed a bit on Monday, fell on Tuesday and Wednesday, and then surged upwards on Thursday and Friday after the Saudi energy minister said his country would be willing to discuss rebalancing the oil market. The minister said Saudi Arabia would “take any action to help” the crude market and will discuss the issue at a meeting in Septmber. Coupled with an EIA forecast that foresees a “sustained tightening” of the crude markets and a reduction in product stocks, New York futures prices now have climbed from below $40 a barrel early in the month to a close of $44.49 on Friday. The IEA says that a combination of falling production and increasing demand, which will be up by 1.4 million b/d in 2016, means that there will be no oversupply in the second half of this year. The Agency believes that refinery processing of crude is now down about 500,000 b/d year over year and projects that production in North and South America alone will be down by 700,000 b/d in the third quarter.

Oil prices fell steadily during July as the realities of oversupply trumped traders’ hopes that there would be balanced markets and higher prices later this year. July opened with London trading just below $51 a barrel and New York around $49.50. By month’s end, London was down to $42.71 and New York to $40.74. The month’s trading was dominated by reports of increasing oil product inventories and higher OPEC production. The decline of nearly $10 a barrel naturally has had repercussions across the oil industry. For most of July, the US rig count was growing as drillers anticipated that crude prices would soon be at a level where more wells would be profitable. By month’s end, however, these hopes had been dashed, and the US oil rig count had nearly stopped growing.

Concerns are rising that the predictions of the oil markets coming back into balance later this year are wrong and that lower oil prices are ahead. Oil production is not falling as fast as predicted. Some outages are coming to a close and the growing glut of oil products could be as bad as last year’s crude glut. Many analysts now are talking about prices falling below $40 in the next few months and a few are even talking about a return to the $30 level. Although US crude stocks have been falling of late, the growth in the inventories of refined products continues to grow. Europe is running out of storage space for refined products which would force a cut in refining and result in lower demand for crude. Increased refining to support the summer driving season in the US has only another few weeks to run before the increased demand for gasoline comes to an end. The US oil rig count was up for the 6th time in 7 weeks and North Dakota reported that its oil production increased slightly in May.

Futures fell about $4 a barrel during the holiday-shortened US trading week closing at $45.41 in New York and $46.44 in London. Prices edged down early in the week, recovered a bit on Wednesday, and the plunged after the EIA reported that the US crude inventory had dropped by only 2.2 million barrels as opposed to the 6.7-million-barrel drop that the API came up with after their weekly survey. The weekly decline for Brent was the largest since January.

The oil markets remained volatile last week, trading around $48-50 a barrel, amidst much uncertainty about the future of crude prices. In the wake of the Brexit vote, analysts are all over the board as to where prices will be by the end of the year. Some are talking about $85 a barrel while others are looking for a retreat to less than $30 again. Nearly all agree that the markets will “rebalance” with supply and demand coming together as demand increases and the supply continues to drop as the impact of the much lower investment levels during the last two years reduces supply. For the next six months, however, there is uncertainty especially concerning the spate of unplanned outages that have taken place in the past few months. Oil worker strikes such as in France and Norway likely will be settled quickly, and Alberta tar sands production will soon be back to normal by the end of the summer. The outages in Libya, Nigeria, and Venezuela, however, are more uncertain and seem to be getting worse rather than better in the immediate future.

The vote in Britain to pull out of the EU came as a surprise as most observers were expecting the referendum would fail. Oil prices fell immediately and after some gyrations settled down about $2.50 a barrel at $47.64 in New York and $47.54 in London.

The ramifications of the British vote for the oil markets will take years to work out, and many believe it will lead to a series of international realignments with other countries pulling out of the EU and possibly even the secession of Scotland and Northern Ireland from the UK. Conventional wisdom currently holds that Britain’s withdrawal from the EU will lead to lower economic growth in the EU, UK, and possibly other countries.