It has been a down week so far for the crude, natural gas, and gasoline markets. After trading close to $109 a barrel in NY and above $110 in London on Friday, crude has fallen steadily for the last four sessions to close at $104.37 in NY and $107.44 in London on Wednesday. New York gasoline futures were down about 20 cents a gallon in the same four sessions and natural gas futures fell to $3.24 per million due to milder weather, the lowest close since late February.
The weekly stocks report showed the US crude inventory was down 1.3 million barrels last week which was about as expected, but US gasoline stocks rose by 100,000 barrels vs. an expected decline of 400,000. US refineries have been running at a fast pace this summer and have been converting much of the unusually high crude inventory we saw earlier this year into oil products. The report also showed that US crude production grew by 0.2 percent last week to 7.56 million b/d and that the inventory at Cushing, Okla. dropped another 2.25 million barrels last week to 39.9 million barrels. The inventory at Cushing hit a high of 51.9 million barrels in January.
The EIA also reported that net US exports of refined products are expected to climb to a record of 1.54 million b/d this month as domestic demand drops to the lowest level in four years. Domestic demand for petroleum products is expected to be only 19.1 million b/d in August, down 0.7 percent for last year. If exports do reach a net of 1.54 million b/d it would be an increase of 800,000 b/d more than in August 2012. Export demand is so high that refiners are expected to process 15.8 million b/d this month, the most since August 2004.
In addition to higher gasoline inventories, the market was hit by suggestions that the Federal Reserve may start backing off on the pace of quantitative easing in September. The Fed’s stimulus program has weakened the dollar and given oil prices a boost for several years now.
The Middle East is no better. The rebels in Syria seem to make a touch of “progress” this week by capturing a military airfield near Aleppo, tearing up a bunch of Alawite villages along the coast, and setting off a big bomb in downtown Damascus. Reuters is reporting that the Saudis have offered Moscow a large economic package in return for cutting back support to the Assad government. There is not much left of Syria’s economy which is being kept afloat by Moscow and Iran.
No progress in Egypt where the confrontation between Morsi supporters and the Army/new government continues. The requisite daily bombings is Iraq are still going on. Fifty-one were killed and 100+ wounded on Tuesday. The Iraq-Ceyhan northern export pipeline is such a basket case after innumerable bombings, Baghdad is talking about building a new one — Just one more thing to blow up.
The terminal strikes and other unrest have made a major dent in Libya’s oil exports but the details change from day to day. The country’s theoretical production capacity is now around 1.4 million b/d as some production never came back after the civil war. Current exports were thought to be around 1 million b/d earlier this year, but then the government announced they were down to 300,000 due to terminal strikes. Exports were later reported as being back up to 700,000 b/d.
The only good news of the week from the Middle East was that Iran’s new President, Hassan Rouhani, seems to be reaching out to the US to resolve the nuclear dispute and end the sanctions. Rouhani said he was “seriously determined” to settle the matter and was ready to enter “serious and substantive” negotiations. It will take a meeting or two before we know if there has indeed been a change in policy.
