The oil markets continue to move with the equity markets. When there is bad economic news, oil and stocks go down. When there is even a flicker of good news, both go up. Last week oil climbed above $53 a barrel, fell to $47 on general pessimism about the global economy, and then rebounded to close Thursday evening at $52.24. News relating to the supply and demand for oil seems to have minimal impact on prices these days.
US crude inventories continue to creep up, this time by 1.7 million barrels. Refinery utilization is low as US demand for distillates and gasoline continues to drop. Gasoline imports from Europe remain high. As long as the oil markets remain in contango with long-dated future contracts commanding a premium to current prices, more oil is likely to go into storage on the theory that prices will rise dramatically with economic recovery. There are reports of at least 10 large tankers waiting off the UK coast for higher prices.
Last week two OPEC oil ministers suggested that a consensus is emerging within the cartel that the best strategy is to keep oil prices at current levels, around $50 a barrel, thereby helping with an economic recovery. This is in sharp contrast to the talk about $70 being the proper price that was prevalent a few weeks ago.
Beijing is claiming that China’s economy has turned a corner and is responding to its own $585 billion stimulus package. Chinese crude imports in March 2009 were up by 33 percent over February and were only 5.5 percent less than the record imports in March 2008. While visiting Beijing last week, Venezuelan President Chavez announced that he had signed an agreement to increase oil shipments to China to 1 million b/d next year. Venezuela currently is exporting about 1.5 million b/d to the US and 380,000 b/d to China. To rousing applause, Chavez told a group of Chinese Communist Party leaders that “God put the oil that China needs for the next 200 years in Venezuela. Before, the United States took our oil like a ‘vampire.'”