Developments this week
After increasing steadily for six trading sessions, NY oil declined on Wednesday to close at $97.01 after the EIA reported an unexpected increase in US crude inventories. London’s Brent crude, however, continued to climb to the highest close since mid-August at $115.96 a barrel. By last week US crude production and imports had largely recovered from Hurricane Isaac leading to a 3.7 million barrel increase in imports over the previous week.
The major news of the week was the decision by Germany’s Constitutional Court that the country can contribute $245 billion to the European Stability Mechanism. This should allow the Eurozone crisis to bump along somewhat longer. Last week the ECB said it was ready to buy unlimited quantities of short-dated government bonds; however, there were many possibly unacceptable strings attached.
Traders are waiting to see if the US Federal Reserve will add to the $2.3 trillion in bonds it bought between December 2008 and June 2011 in the first two rounds of quantitative easing. Some word on this is expected Thursday. They are also expecting some word from Beijing on a new fiscal stimulus plan. China’s implied oil demand fell in August to a 22 month low of 8.92 million b/d as its economy and foreign trade slows.
US gasoline futures, which have been rising steadily since late June, fell on Wednesday despite a decrease in gasoline inventories last week. Many analysts believe that oil prices are due for a decline now that the summer driving season is well over and the switch to cheaper winter blends has begun.
The top geopolitical story so far this week was the reported refusal of President Obama to meet with Israeli Prime Minister Netanyahu at the UN meeting later this month. The snub resulted in a blast from Tel Aviv to the effect that the US had no moral right to restrain Israel from bombing Iranian nuclear facilities. The Israelis continue to call of the US to set “red lines” which Tehran’s nuclear program must not cross or it will be attacked by the US.
The IEA’s monthly Oil Market Report says that global production slipped by 100,000 b/d in August to 90.8 million b/d. It also reports that Tehran managed to push its exports slightly higher last month to 1.1 million b/d. It also reports that global demand increased by 1.2 million b/d in the 2nd quarter as Japanese utilities sought to replace the power from shut-in nuclear plants. OECD crude stocks increased by only 10 million barrels in July, about half the normal level. Preliminary data suggests that these stocks declined by a counter-seasonal 24 million barrels in August. US crude stocks are running about 50 million barrels higher than normal for this time of year, while Europe which has to deal with the Iranian sanctions is about 55 million barrels lower. These numbers may account for the seeming lack of interest by European nations in releasing strategic stocks to lower US gasoline prices prior to the election.
