Developments this week
Crude prices continued to decline this week as more bad economic news came out of Europe. Wednesday’s close left NY crude at $89.98 – the first close below $90 since early August -- and London’s Brent at $109.81. Prices were about $10 a barrel higher earlier this month mostly on optimism that the US and European stimulus packages would lead to higher demand. Since then, a stream of bad news leading to new worries about Spain and Greece has dampened the optimism despite the promises of bailouts from the ECB.
In contrast to the crude story, US gasoline futures have continue to surge this week and are now up over 20 cents a gallon since last week, closing on Wednesday at $3.08 a gallon. The increase on Wednesday came after a small fire at a Canadian refinery and the EIA report that gasoline stockpiles in the Northeastern US are at their lowest levels since November 1990. National gasoline stockpiles are at a four-year low and have fallen by 14.2 million barrels in the last nine weeks despite weak demand. Total US fuel use decreased to an average of 18.4 million b/d in the last four weeks and gasoline consumption fell to 8.8 million b/d. These numbers were backed up by the API which reported that US petroleum products in August were down to 18.6 million b/d – the lowest level in 15 years.
Natural gas prices continued to climb this week and are now at $3.02 per million, up by more than 25 cents per million in the last week. Although inventories are higher than normal, increased use by the electric power industry and forecasts of cooler weather in the mid-West next week have supported prices. A plunge in drilling for natural gas suggests that new injections to storage will be closer to normal than last year. Moreover, the EIA released data on Wednesday showing that natural gas use by power companies increased by 32 percent in the first half while the use of coal declined by 18 percent. These numbers are probably conservative as they do not include the very hot summer months.
Developments in the Middle East this week were not sufficiently threatening to overshadow the bad economic news from Europe, Japan, China, and the US. Iran’s President Ahmadinejad showed up at the UN, said the usual nasty things about the Israelis, but played down the likelihood of an Israeli strike. He did however say that the US would be responsible for any attack on Iran and would feel the weight of the retaliation. To back up this threat, Tehran test-fired a batch of anti-ship missiles that could be used against oil tankers or US warships in the event of war.
The US said that Iran’s state-owned oil company was so closely tied to Iran’s Revolutionary Guard Corps that it too would be subject to sanctions on business transactions. The Syrian situation continues about the same with rising fears that the mostly Sunni vs. Shiite conflict could spill over into Iraq which is now producing serious amounts of oil.