Peak Oil Notes – Jan 8

Oil prices continued to fall this week with New York futures dropping from $52.50 on Monday to touch a low of $46.83 Wednesday morning. London’s Brent fell from $56 to a low of $49.83 triggering a wave of headlines that the $50 a barrel barrier had been broken. London and New York rebounded later on Wednesday to close at $51.15 and $48.65 respectively, up slightly for the day.  There is still no indication that the fundamentals of too much oil chasing too few customers have changed significantly and most traders say we have not yet reached the bottom.
 
The weekly stocks report showed US crude inventory declining by 3.1 million barrels largely due to a drop in imports; but  a high rate of refinery utilization, 93.9 percent, resulted in a jump in US gasoline and distillate inventories of 19.3 million barrels. The increase in gasoline stocks was the largest on record going back to 1982. This news sent gasoline and distillate futures falling to 2009 levels. Total US crude and product inventories rose to 1.14 billion barrels, the highest level in records going back to 1990.  Other data going back to 1956 show that total crude and product inventories last exceeded this level in 1983.  The unusual jump in oil products has analysts puzzled – some think it could be attributed to a temporary drop in exports.
 
The US exported a record amount of “crude oil”, likely including some condensate, in November. The total for the month was 502,000 barrels which is the highest in records going back to 1920.  Ninety-one percent of the barrels exported went to eastern Canada which must import most of the crude required by refineries.
 
Reports of still more cutbacks in drilling plans for the US and Canada continue to come in.  The conventional wisdom is saying that while drilling new wells may be slowing, there is still a large backlog of partially completed shale oil wells that will be finished in the next six months so that production of US oil  will likely continue to increase for much of the first half of 2015.  Discussions of just how low prices will go are increasing with people making technical cases for prices falling to as low as $20 a barrel.
 
US natural gas continues to trade just below $3 per million BTUs despite the cold wave settling in across much of the northern US. Despite in increase in demand for heating gas and the likely slowing of drilling due to the cold, the markets believe there is too much gas being produced in the US. Many newly drilled wells are not yet hooked to distribution networks.
 
In Europe, the Russian ruble resumed its plunge this week as oil prices continue to fall.  Fifty dollar oil is the level where even Russian ministers say they can no longer prevent a further collapse of the ruble.  New figures show that the eurozone has fallen into deflation for the first time since 2009 as oil prices continue to fall.
 
There may be some movement in the Iranian nuclear negotiations. President Rouhani is threatening to hold a referendum on a nuclear agreement and some Iranian papers are saying the West has given in to the “righteous” Iranian position and that an agreement is near.