This week’s trading has been dominated by the Ukrainian situation which sent Brent crude surging by $3 a barrel on Monday before falling to close at $107.76 — nearly $1.50 below where it started on Monday. NY futures followed a similar pattern this week closing on Wednesday at $101.45. As the exchange of rhetoric between Russia and the West continued, traders decided that Ukrainian situation was not so much a threat to oil supplies as it was to the global economy and the demand for oil. Only about 300,000 b/d of Russian oil are transiting the Ukraine on the way to customers in Europe since the Nord Stream pipeline under the Baltic came into operation.
The steep drop in NY oil futures was helped on Wednesday by profit taking that had seen oil rise by $13 a barrel since early January and the weekly stocks report which showed a 1.4 million barrel increase in US crude inventories. Weak employment numbers in the US are being attributed to the cold weather. Stocks at Cushing, Okla. fell by 2.6 million barrels last week to a two-year low of 32 million barrels. The continuing movement of crude out of Cushing should lead to a further decrease in the Brent/WTI spread which is now at $6.31.
Refinery operations were down to 87.4 percent of capacity as late winter refinery maintenance increased. The EIA reported domestic crude production in the lower 48 was unchanged from the week before last suggesting that they have no information on what is going on in North Dakota where temperatures are setting record lows.
US natural gas traded in a 20 cent range around $4.60 per million BTUs this week which is well below the top of $5.20 seen last week. The Wall Street Journal has noticed that US gas inventories have been badly depleted by the extreme cold this winter. The Journal reports that when winter natural gas withdrawals are over, stocks could be as low as 875 billion cubic feet which is only half the 1.8 billion cubic feet normal when the summer stocks rebuilding cycle begins. A warm summer or any slippage in gas production this year could lead to shortages next winter.
In China’s version of the State of the Union address, Premier Li said Beijing has declared war on pollution, but still hopes to achieve a 7.5 percent annual growth rate. In Iraq the bombs continue to go off as usual this week, but the country’s exports rose by 551,000 b/d in February. Baghdad is scheduled to bring more than 500,000 b/d of new production online this year. Demonstrators stormed the Libyan parliament out of frustration that no progress in being made in settling the numerous problems the country is facing. In Nigeria, gross mismanagement, fraud, and theft have resulted in widespread gasoline shortages in Lagos. The protests in Venezuela roll on with no end in sight. Former PDVSA officials are predicting that Venezuela’s oil industry could soon collapse.
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