The great oil crash of 2014 continued this week with New York futures trading below $76 a barrel for a time on Tuesday before rebounding to close Wednesday at $78.67. London oil traded below $82 on Wednesday before closing at $82.95. This week’s decline was in part caused the Saudi’s announcements that they were cutting prices for deliveries to the US and raising prices for their Asia customers. This move verifies that Riyadh is still more interested in maintaining market share and driving high-cost shale oil from the markets than in buoying prices by cutting production.
The price rebound on Wednesday, which was largely confined to the US market, came after the EIA weekly stocks report showed US crude inventories increased by only 460.000 while analysts had been expecting 2.2 million. US gasoline inventories fell by 1.4 million barrels last week and are now at their lowest level in the last two years. Some traders are worried that US gasoline stocks are getting into the region where shortages could develop driving gasoline prices upwards again.
Distillate stocks fell by 724,000 barrels last week. Refining utilization is starting to revive after the fall maintenance program and was up to 88.4 percent.
Another factor contributing to Wednesday’s price bounce was a report that attacks on Libya’s Western oil fields by local militia has shut-in 300,000 of the 800,000 b/d that Libya was thought to be producing. If this report is confirmed it could contribute to further strength in oil prices. The markets were also concerned by reports of a terrorist attack in Saudi Arabia’s eastern province. Such attacks in the tightly controlled kingdom are rare and have raised concerns ISIL sympathizers may start showing up in the country.
The climb in US natural gas prices continued this week sending NY futures above $4.30 per million BTUs before closing Wednesday at $4.20. With fears of last winter’s polar vortex fresh on traders’ minds, close attention is being paid to reports from long-range weather forecasters that December is now showing a higher risk of being colder than forecasted. This adds to previous forecasts that January and February will be unusually cold. One forecaster said the whole winter is shaping up to be “pretty nasty.”
This week’s elections will likely have a significant impact on US energy policy during the next two years.. Bills to build the Keystone XL pipeline; cut back on environmental restrictions on emissions and drilling, and to halt hindrances to fracking are likely to appear. Whether they can get the 60+ necessary votes in the Senate and a presidential signature will depend on the nature of the relationship between congressional leaders and the White House.
The EU sharply lowered its forecasts for economic growth this year which is now expected to be only 1.3 percent this year and 1 percent in 2015.
Separatists in Eastern Ukraine swore in the new leaders elected over the weekend. Moscow hailed the development while Kyiv says the election and the establishment of a separatist government in the region violates the peace plan. The European Commission says they believe that Russia’s economy is being badly hurt by the sanctions that have been imposed on it.
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