Peak Oil Notes – Dec 24

Mid-Week Update
 
Oil prices continued to fall on Monday of this week, pushing Brent prices to lows not seen since 2004 and West Texas Intermediate to below $34 a barrel for the first time since 2009. There was a sharp rebound on Wednesday ending NY futures up 3.8 percent to close at $37.50 a barrel and Brent up 3.5 percent to close at $37.36.  Wednesday’s move came after the weekly stocks report showed an unexpected 5.9-million-barrel drop in US crude oil stocks. This news caused many traders who had made profits on short positions as oil fell some $16 a barrel from early October to close out their positions in advance of the holidays.
 
Observers noted that US imports fell by 1 million barrels per day from the week before last as importers let their year end onshore inventories drop to lower tax bills. This is a normal phenomenon which takes place each December along the Gulf Coast. This year, however, there are some 40 tankers, containing nearly 30 million barrels of oil, holding off Galveston waiting to unload.  If there is sufficient storage space available along the Gulf Coast, these tankers will be unloading after the 1^st of January sending US crude stocks still higher.  Few see any reason for optimism in the Wednesday rebound which was largely technical and not driven by fundamentals.
 
Pessimism prevails across the oil industry sparked by record OPEC production, the prospect of a big increase in Iranian exports, and warm weather in the US and Europe which is reducing the need for winter heating. Goldman Sachs has reiterated its forecast that oil might fall to $20 a barrel, and some bearish speculators are buying options that cannot be exercised unless oil falls to $15 a barrel.  The IMF is now forecasting that oil will fall to between $20 and $30 a barrel after Iran begins increasing exports again.
 
OPEC sees the demand for its crude will fall for the rest of the decade. In its annual World Oil Outlook, the cartel said that while its production will be down by the end of the decade, saying that oil prices should average around $70 a barrel in 2020 and $95 in 2040 — a long way ahead to forecast anything these days.
 
Oil exporters are hard at work lining up customers in advance of Iran’s unfettered return to the oil markets, possibly as soon as next month. Tehran has been negotiating with Indian importers who are demanding large discounts and other incentives to take increased quantities of Iranian crude in light of the global oil glut.  People privy to the negotiations said that, in a rare move, the Iranians asked the Indian refiners for proposals of prices and conditions that would make Iranian oil more competitive than that of other exporters. Iran is currently offering 90-day credit, free shipping and some discounts on oil prices. The new offer shows just how desperate Tehran is to regain its pre-sanctions share of the oil market.
 
US natural gas futures recovered about 30 cents per million BTU’s this week to close at $1.99. Prices have been declining steadily since September largely due to very warm weather across much of the US. The surge this week, which was the largest since January, came as the possibility of cooler weather next month began creeping into forecasts.