Weekly Review

Oil briefly traded above $50 a barrel last week but quickly fell back to close at $49.33 in NY and $49.32 in London on profit taking and uncertainties about the status of the global oil glut. For the past two months, oil prices have been driven higher by a series of unplanned production outages in Kuwait, Libya, Canada, Nigeria, and concerns about the political stability of Venezuela. Currently, about 3.5 million b/d of normal production is offline. While some of these outages, such as the 1 million b/d fire-caused drop in tar sands production, will be short-lived, other situations such as in Nigeria, Libya, and Nigeria could last indefinitely.

Last week began on a bullish tone with oil prices climbing to a seven-month high, Goldman Sachs talking about the end of the oil glut, and columnists predicting a new spike in prices. All this optimism was based on solid Chinese oil imports, strong US gasoline demand, and production outages in Alberta, Nigeria, Libya and Venezuela. As the week moved on, however, the market became less optimistic as US, European, and Asian crude stocks continued to rise, and prices failed to break through the $50 a barrel barrier.

Oil prices continued to climb last week with New York futures closing up 3.5 percent, the tenth weekly increase in the past 13 and closing Friday at $46.21. Similarly, London prices were up 5.4 percent to close at $47.83. Forces that move the oil markets keep coming in and out of existence. Hopes that the major exporters would agree to freeze production have now faded, to be replaced by unexpected production outages in several countries as the principal force driving prices higher.