Peak Oil Notes – Apr 30

Oil futures traded quietly on Monday and Tuesday until the weekly stocks reports showed a decline of 514,000 barrels of crude in storage at Cushing, Okla. — the first such drop in 21 weeks. This was the news that traders had been waiting for and quickly bid futures up to 2015 closing highs of $58.58 in New York and $65.84 in London.  The price jump came despite total US crude inventories increasing by 1.9 million barrels last week to an 80 year high – albeit less than analysts had expected; a report showing that US GDP growth was only up by 0.2 percent in the first quarter; US crude production increasing by 7,000 b/d; total commercial crude inventories, which include stocks of gasoline, distillates, and propane, increasing by 7.7 million barrels – showing that much of the crude was simply turned into products; and a report of pipeline problems in West Texas which is said to be stranding millions of barrels of crude in the Permian Basin.  Some traders are saying that when this news is netted out, it does not support a significant long-term price rally.
 
Oil prices have been rising for the last six weeks on the fighting in Yemen and expectations that the falling rig count will soon turn into lower US shale oil production. Bloomberg points out several factors that may keep prices low for a while longer: The price of long dated futures contracts are not increasing as much as nearby ones; US crude stocks are at an all-time high and continue to grow; the backlog of as many as 4,000 shale oil wells that have been drilled but not yet fracked; the continued growth of Saudi oil production; and industry participants increasing their short positions to lock in prices now so that they can weather further price cuts.
 
Oil prices continue to be supported by concerns over the course of the fighting in Yemen, which many see as a struggle between Iran and the Saudis for dominance in the Middle East.  Heavy fighting continued in Yemen with Saudi planes pounding arms depots and cratering the runway at Sana International airport, closing one of the last avenues to deliver humanitarian supplies to country. The humanitarian crisis is growing worse every day. A senior Iranian general said this week that the bombing of Yemen would soon lead to the collapse of the House of Saud. In the meantime Saudi King Salman has appointed two new heirs from his family line as crown prince and deputy crown prince to strengthen his position as troubles increase along the Kingdom’s borders.
 
The significant military setbacks that the Assad government had in Syria last week have many wondering just how much longer it can survive.
 
Nigeria released the long-awaited PricewaterhouseCoopers audit report, which was to investigate just where the missing $20 billion in oil revenues went.  Unfortunately, the cover letter accompanying the report says the auditors cannot vouch for their report, as they were never given enough access to the books to do a thorough job.
 
A new report says that despite Beijing’s claims that its economy grew by 7.4 percent, detailed analysis of China’s electricity consumption last year shows that economic growth may have been much lower. Historically China’s growth in electricity consumption, which was only 3.8 percent last year, has been very close to its GDP growth. Beijing announced this week that it is about to undertake its version of quantitative easing to spur sluggish growth.`