After trading above $100 a barrel in NY last Friday and above $118 in London, oil prices plummeted this week, losing $9 a barrel to close at $91.98 in NY and $108.02 in London. The general reason for the drop was that oil prices had reached a four-month high last week on the euphoria over bond buying by the US Fed and the ECB. The widespread demonstrations in the wake of the Muslim video also provoked fears that oil supplies could be affected. When not much happened over the weekend, prices began to fall. The final blow to prices came on Wednesday when the EIA announced that US crude inventories had risen by 8.5 million barrels last week as opposed to the 1-2 million barrels analysts had expected. The inventory surge was largely due to imports arriving at the highest rate since January in the wake of the hurricane and the restoration of Gulf production. US gasoline futures are down about 20 cents a gallon from highs touched last week. Natural gas prices continue to fall as cooler weather sets in.
Trading officials are puzzling over sudden price drops on Monday when oil declined $3 in one minute and again on Wednesday morning. Some are suspicious that trades improperly entered the computer, known as the “Fat-Finger” error, sparked the rapid decline.
Another factor in this week’s decline may have been an announcement by the Saudis that they are producing about 10 million b/d and will produce more if customers demand it. The Saudis hold that the ideal price for crude is$100 a barrel and that last week’s prices were not supported by fundamentals.
Middle Eastern turmoil continues apace with suicide bombers killing seven near Baghdad’s Green Zone; Prime Minister Netanyahu continuing to pressure Washington for a definitive red line; Israeli armed forces conducting the largest exercise in years; and Iran claiming that efforts were made to blow up power lines running to its enrichment facilities. The EU says that a meeting with Iranian officials about restarting the nuclear talks was “useful and constructive.” The Syrian situation was little changed with both the refugee and body count continuing to rise.
Brazil has fined Chevron $17 million for some 3,700 barrels of oil that were leaked last November. The company also faces additional charges as well as criminal and civil lawsuits.
In the Arctic, Shell has abandoned efforts to drill any wells off Alaska this year after a containment dome that is deemed vital to the safety of the operation was damaged. The company will drill a series of “top holes” in preparation for next year’s drilling season.
The European Commission said it plans to limit the use of biofuels derived from food crops to 5 percent of the EU’s transportation fuel. This is a radical change in policy and comes in response to growing concerns about global food shortages.