Peak Oil Notes – June 4

After climbing on Tuesday due to a surge in the euro, prices fell on Wednesday to close down slightly for the week.  Oil now has been trading in a fairly narrow range since mid-April with New York futures staying around $60 a barrel and London around $66.  New York futures closed at $59.64 on Wednesday and London at $63.80. The oil market rally, which began last March, was based on the assumption that falling rig counts and capital investments would soon shrink the global oil glut. So far this has not been the case as increasing supplies of US shale oil and ample OPEC production are keeping the markets over-supplied.
 
US crude inventories declined by 1.9 million barrels last week as is normal for the time of year, but the shrinkage is nowhere near the pace at which they increased last winter and inventories are currently about 23 percent higher than they were at this time last year. Total US commercial petroleum stocks were 7.4 million barrels higher due to a 3.8 million barrel climb in distillate stocks and a 3.8 million barrel climb in the propane industry. Some analysts are noting that with US refining running at 93 percent of capacity, the US could soon be faced with a glut of refined products.  
 
The EIA estimates that US production rose by 20,000 b/d last week this came for Alaskan production which is another story. There is much discussion about the increasing efficiency of the US shale oil industry as its costs have fallen dramatically and it is drilling only the best yielding prospects. The financial press is beginning to point out that even the EIA says that its weekly production estimates are only accurate to within 100,000 b/d and it is several months before a more accurate picture of US production develops. Even so, US production is likely near its highest level since 1983 or even 1972 depending on the time series used and the EIA projects it will go another 500,000 b/d higher.
 
The OPEC meeting on Friday, June 5^th is expected to leave its rather meaningless production quotas unchanged at 30 million b/d.  A few of the less affluent OPEC members are that production should be cut until oil gets to $80 a barrel. The Russians who also have major oil-price problems have been in discussion with OPEC. Neither side seems to be willing to make production cuts as that would likely encourage more US shale oil production.
 
In Ukraine, heavy fighting again has broken out between government forces and the Russian-backed separatists. Given that Moscow shows no sign of backing down in its support for the separatists, the chances of any relaxation of the EU’s sanctions on Moscow seem slim.  Russia’s economy seems headed for a couple of bad years. The left-wing Greek government seems more interested in refighting World War II than in seeking a solution to its debt problems. Some EU officials are saying a disaster is coming which could force down the euro and take oil prices with it.
 
In the Middle East, ISIS continues to make gains in Syria and Iraq despite coalition bombing. The meeting on ISIS over the weekend produced few concrete results with Baghdad calling for more aid and the West calling on Baghdad to make political reforms that would bring the moderate Sunnis into the government.