Oil prices drifted lower on Monday and Tuesday as the EU struggled over what to do about Greece. On Wednesday, however, a new outbreak of violence in the Middle East sent oil prices a dollar or so higher with NY futures closing at $86.32 and London at $109.61. The weekly stocks report is delayed this week, but analysts are expecting an increase in US crude stocks of 2.6 million barrels due to reduced consumption in the New York region.
The Greek bankruptcy situation is on hold for a week or so. Athens was able to borrow €4 billion to keep it going for a couple of weeks. A public dispute arose on Monday between the EU finance ministers and the IMF over how long the Greeks should be allowed to get their fiscal house in order. In the meanwhile large demonstrations against austerity were held in several European cities on Wednesday as the EU governments kick the crisis can further down the road.
Violence increased across the Middle East this week with heavier fighting in Syria; the Israelis firing on Syrian positions on the Golan after some stray shells landed on Israeli territory; large anti-government riots in Jordan to protest fuel price increases; and a series of Israeli air attacks on Hamas in Gaza. The Israeli air attacks came after Hamas militants fired some 115 rockets into Israel in the past week. Tel Aviv is calling up reservists should a land offensive into Gaza become necessary. The scale of the attack on Gaza and the threats of retaliation against Israel have the oil and equity markets concerned about how long this renewed violence will last and how far it could spread.
A Bloomberg survey says Iranian crude production fell by 200,000 b/d in October to 2.65 million b/d, the lowest level since 1990; however, the IEA reports that Iranian exports for the month grew by 300,000 b/d. The difference may be due to a reduction in the Iranian’s floating storage as they convert some of their tankers from floating storage of excess production to delivering oil to countries that cannot get commercial insurance on the voyages.
The IEA in Paris made some waves this week with the release of their monthly Oil Market Report and their annual World Oil Outlook. The monthly report was relatively routine with the not-unexpected forecast that world oil consumption for the fourth quarter will be down by 290,000 b/d due to Sandy and falling demand in Europe. The annual report, however, made headlines with the forecast that the US would become the world’s largest oil producer by 2017 because of the rapid growth of tight oil from shales. The heart of the IEA estimate was that US unconventional oil production would grow to some 5 million b/d between 2020 and 2025. This is about 2 million b/d higher those in the peak oil community have been projecting for the peak of tight oil production. Some papers took this as proof that the US will soon be “energy independent” and can start exporting oil, despite the fact that the US uses some 18 million b/d.