Last week oil prices were dominated by a balance between fears that spreading unrest in the Middle East would lead to restrictions on oil exports and concern that Beijing’s efforts to control inflation would slow oil imports. The buildup of stocks at the Cushing, Okla. futures contract delivery point to near record levels continued to keep NY oil prices well below those in London. NY oil traded around $85 dollar a barrel early in the week but then closed the week at $86.20 as demonstrations increased in several Middle Eastern countries. In London, Brent crude closed out the week at $102.52 a barrel after reaching $104 earlier in the week. The spread between London and NY crude increased to a record $15.94 during the week, mostly due to the glut at Cushing and technical factors involving the delivery of NY futures contracts.

Oil specialists are becoming increasingly strident in the assertion that NY oil futures which for decades have focused on demand for gasoline in the US are no longer as relevant to establishing prices as increases in demand for oil shifts to Asia.

Beijing announced that its CPI has increased by a less-than-expected 4.9 percent year over year in January. The Chinese re-weighted their CPI to put less emphasis on food prices, which are rising rapidly due to bad weather. The number of outsiders questioning the validity of China’s GDP and CPI statistics continues to grow. At any rate, Beijing tightened lending requirements and raised gasoline and diesel prices once again in an effort to stem rising consumer costs.

The Joint Data Initiative (JODI) website says that OPEC’s crude exports fell 2 percent from November to December as Saudi exports fell by 387,000 b/d to 6.05 million b/d from 6.36 million b/d in November even as Saudi production rose to a two-year high of 8.37 million b/d. This implies that the Saudis either consumed or stored 2.32 million b/d during December. If these numbers are confirmed by IEA and EIA analysts, it would partially explain recent price increases in Brent crude.

Beijing announced that crude oil imports in January were 5.13 million b/d, an increase of 27 percent or 1.1 million b/d over January 2010. The IEA’s forecast that there will be sufficient oil available to preclude a price spike in 2011 is based in part on a large reduction in the rate of increase in China’s demand for oil from what was seen in the latter months of 2010.

China’s oil reserves, which are a state secret, may play a big part in how much increasing demand subsides in the coming year. Last week Barclays issued an analysis as to how much oil has been making its way into China’s reserve stocks and concluded that for 2010 it was a trivial 10 million barrels. The bank concludes that China could be adding around 100 million barrels to its reserve capacity this year thereby adding about 250,000 b/d to its rate of import which is now running around 5 million b/d.

It is starting to dawn on the US media that while NY crude has been relatively stable recently around $85 dollar a barrel, the price of gasoline in the US continues to rise rapidly, now averaging about $3.17 gallon. This, of course, is because US crude importers are paying London prices for their feedstock, which have been holding above $100 a barrel for several weeks.

Given that US gasoline prices inevitably rise from February to the summer driving season as demand increases and more expensive blends are produced, observers are starting to talk about $3.50 gasoline this summer and even $4 if there is trouble in the Middle East or if the Saudis do not come through with their widely anticipated production increase this year.