Another large increase in US crude stocks last week sent NY oil futures down to a close of $44.45 a barrel, the lowest in nearly six years. US commercial crude stocks are now at 407 million barrels, the highest level in at least 80 years. The last two-week increase of 19 million barrels was the largest in nearly 30 years. London crude futures, which are more attuned to the turmoil in the Middle East and Ukraine, fell by a lesser amount on Wednesday to a close of $48.47. London crude has been trading in a narrower range between $48.50 and $50 a barrel for the last two weeks while US futures have drifted downwards due to the increasing stockpiles. The EIA also reported that US crude production increased by 27,000 b/d last week to 9.21 million; however some are skeptical that the Administration’s ever-increasing production numbers may be optimistic.
US refineries increased their crude processing to 88 percent of capacity from 85.8 percent the week before. This is during a period when they usually cut back for maintenance and the changeover to summer blends. The stockpiles at Cushing, Okla. rose by 2 million barrels to 39 million, the highest since the new pipeline that moves Cushing oil to Gulf refineries opened a year or so ago.
Several major banks lowered their forecasts for the average price of oil in 2015. The general sentiment of traders and investment banks that oil prices will continue to slip for the next three to six months before bottoming out somewhere in the $30s, and then rebounding in the second half, remains.
With US average gasoline retail prices now about $2.03, we are starting to see large increases in gasoline consumption, which is up nearly 8 percent from this time last year. As usual we will not know for a while how much of this is going into US gas tanks and how much is going for export.
Despite the cold weather in the northern US, natural gas prices slipped 11 cents per million BTUs on Wednesday to close at $2.86. Increasing US natural gas production is ensuring that there will be plenty of natural gas for the rest of the winter no matter how cold its gets.
The US Senate will delay a bill imposing new sanctions on Iran for another two months, giving the negotiators time to reach, or not reach, a deal with Tehran. Iranian lawmakers are threatening to annul the interim Geneva agreement if new sanctions are imposed.
President Obama is planning to ban drilling in 9.8 million acres off the Alaska coast. At the same time he will open the East Coast between Virginia and Georgia for drilling.
China plans to set a 2015 growth target of “around 7 percent” which is quite a comedown from the growth rates Beijing was reporting only a few years ago.
The situation in Ukraine continues to deteriorate with fighting increasing. Russia’s bonds were downgraded to “junk” by S&P last week, sending the ruble still lower. Moscow is planning a 10 percent government-spending cut to help cope with the crisis.
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