Peak Oil Notes – May 28

Oil prices have fallen for three straight sessions this week closing Wednesday at $57.51 in New York and $62.06 in London, which is some $6-8 a barrel lower than the recent peaks hit in early May. Brent’s premium over WTI is back down to $4.50, the smallest since mid-April.  With little news of oil’s fundamentals this week, traders are attributing the price decline to a stronger dollar which has been climbing on speculation that the US will increase interest rates for the first time in years.  The lack of progress in working out yet another Greek bailout has not helped the euro.
 
The weekly stocks report is delayed until Thursday this week, but analysts polled by the wire services expect that US crude stocks will decline for the fourth straight week and the API’s quick and dirty survey says that crude stocks increased by 1.3 million barrels while gasoline stocks fell by 3.6 million. Several major financial institutions are pessimistic about the course of oil prices this summer with forecasts that oil prices will fall by another $10 a barrel or so.
 
Most observers agree that the rapid growth in US shale oil production has declined, but there is little agreement as to whether the growth has just slowed or whether an actual decline has set in.  A week or two ago, a few shale oil drillers were talking about adding additional rigs in response to the price increase that went on for most of the spring.
 
US natural gas prices fell this week as forecasts for an East Coast heat wave next week have been moderated. Natural gas futures closed at $2.81 per million BTU, down from a high of $3.10 last week. The sub-$3.00 prices are encouraging power companies that have the ability to switch fuels to stick with gas rather than coal for a while.
 
Conventional wisdom says that OPEC will continue to back the Saudis at next week’s meeting and retain the current production quotas.
 
As usual, not much good is happening the Middle East. Baghdad has launched a major attack to recapture Ramadi, which it lost to ISIL the week before last. The attack seems mostly aimed at refuting the US Defense Secretary’s assertion that Baghdad’s troops can’t fight after they fled Ramadi despite a 10 to 1 advantage in troop strength. The ISIL forces that took over parts of the large Beiji refinery north of Baghdad last week have done so much damage to the facility that it will be years before much oil is ever refined there again. The Saudis are back to bombing Yemen now that the humanitarian truce has expired.
 
Not much news on the nuclear negotiations. With Tehran seeming to back off on just how intrusive IAEA inspections of its nuclear facilities can be, the French are threatening to torpedo the whole agreement.  Some are saying that Israel is getting ready to invade southern Lebanon.  Allegedly this would be to destroy the large stocks of missiles that Hezbollah has stored there, but in reality to kill the Iranian nuclear agreement.  The theory is that there is no way the US can sign a nuclear treaty so long as Hezbollah is showering Iranian-supplied missiles on Israeli towns.