1. Oil and the Global Economy
Oil prices were little changed last week, but managed to close out November a few dollars higher than the October closing thereby registering the first monthly increase since August. New York futures ended the week at $88.91 and London at $111.23. Better economic news, including higher US GDP numbers, offset concerns about the coming "fiscal cliff" and bad economic news from the EU. Unrest across much of the Middle East continues to support prices although no specific threats to oil exports are in sight.
The weekly US stocks report contained little of note -- US crude imports over the last four weeks have been running about 700,000 b/d lower than last year and distillate inventories, which are way below normal, continue to fall. With global demand for distillates running above what the global oil industry can produce, it seems likely that higher prices or even shortages are in the offing.
US natural gas prices fell 8.7 percent last week to close at $3.64 per million after the EIA reported an unexpected jump of 4 billion cubic feet in inventories and forecasters predicted warmer weather in the immediate future. Natural gas prices were over $4 per million BTUs in mid-November. The price drop since then has caused a return to coal of the part of some utilities.
2. Middle East
With the fighting between Israel and Hamas over for a while, the spotlight shifted to Egypt where new Presidential decrees, which many saw as the assumption of dictatorial powers, brought protesting crowds back to Tahrir Square. These secularist demonstrations were closely followed by Islamist crowds backing the President and shutting down the judicial court that is working on a new constitution. The root of the unrest is an effort by President Morsi and his supporters to push through a new constitution that some protestors fear will turn Egypt into an Islamist state by enshrining religious beliefs and practices in the new constitution. Some observers fear the tensions between Islamists and secularists will soon deteriorate into violence adding yet another dimension to the burgeoning Middle East Crisis. Ethiopia's efforts to dam the Blue Nile, a project which is 13 percent completed, could deprive Egypt of 25 percent of its water while the dam is filling. The Nile is the only source of water for Egypt's 84 million people so continued work on the dam is almost certain to lead to more troubles.
The situation in Syria continues to get worse, with the rebels cutting access to the Damascus airport, forcing its closure, in addition to overrunning numerous military bases. The internet and other communications in Syria were out for two days last week but seem have been restored. Government aircraft continue to bomb rebel positions in the Damascus suburbs as the rebels prepare for a final push on the capital.
Reports from Washington suggest that the Assad government may be moving chemical weapons in anticipation of using them against the rebels as a last ditch tactic. If this happens, it is likely to result is some sort of Western intervention to secure the weapons. This development in turn could further increase tensions in the region.
Terrorist bombs continue to go off in Iraq. Some 2,000 Iraqis now have been killed by such attacks since the US pulled out a year ago. If the violence continues it is likely to threaten ambitious plans to increase oil production. Iraq's production slipped by 200,000 b/d in October a possible harbinger of things to come.
Renewed violence in Jordan is just below the surface as the monarchy that has kept the country relatively stable since 1921 faces a serious threat to its existence. Troubles in Libya, still without any solid governance, continue. The major refinery outside Tripoli is closed periodically by protestors and the chances in increased foreign investment to maintain oil production seem dubious.
There was little change in the Iranian nuclear confrontation last week. The head of the IAEA told the organization's board that he cannot provide "credible assurance" that Tehran is not developing nuclear weapons. Iran appears to be preparing for continued sanctions and is basing its budget exports of 1 million b/d down from 2 million in 2011. Countries continuing to import oil from Iran -- India, Turkey, South Korea, Sri Lanka, Taiwan, Malaysia, and South Africa -- appear to be making satisfactory progress in cutting their Iranian imports thereby avoiding tough US sanctions laws. The situation for China is still unclear.
In Washington, the US Senate voted harsher sanctions on anyone trading with Iran, a move opposed by the Administration as only complicating negotiations.
Athens avoided going bankrupt for a while longer last week, after its EU creditors agreed to lend it the money to keep functioning. After three weeks of negotiations, the Eurozone and the IMF agreed to $57 billion in loan payments and Greece agreed to series of measures designed to improve its debt posture. Implicit in the deal seems to be some sort of understanding that the creditor nations will eventually forgive a portion of Greece's mounting debts. The EU also agreed to a restructuring of Spain's banks.
The bad news for the week was that Eurozone's unemployment reached a new record in October with another 173,000 out of work. Coupled with this news was a spate of statements be senior EU economic officials to the effect that clear progress is being made in the Greek and Spanish situations and that the situation should get better next year.
The OECD cut its global growth forecasts last week while saying that the debt crisis in Europe is the greatest threat to the world economy. The organization now says that the global economy will grow only 2.9 percent this year and 3.4 percent in 2013 down from the previous forecast of 3.4 and 4.2 percent.
4. The Climate Summit
The UN climate summit opened in Qatar last week with some 17,000 delegates in attendance. China took the lead in stating that economic growth to "eradicate poverty and improving living standards" takes precedence over reducing emissions "for a period of time." The EU said it was in no position to help developing countries reduce emissions to meet climate objectives. The US said it couldn't go on the 17 percent reduction target for emissions for 2020.
Accompanying the meeting, the World Bank issued a report saying that extreme weather patterns may become worse if governments fail to reach their climate goals; the World Meteorological Organization reported that this year was the ninth-warmest on record; and the US Intelligence Community chimed in with a report saying that says the consequences of climate change--rising sea levels, severe flooding, droughts, fires, and insect infestations--pose threats greater than those from terrorism ranging from massive food shortages to a rise in armed conflicts.
Some are hopeful that Super storm Sandy might mark a turning point in the climate change debate. So far there is little evidence that this is happening. The US position at the summit did not change markedly, the administration does not have climate change as a priority, and senior Republicans in Congress are still saying they will block any climate change legislation.
Quote of the week
"Mr. President, let me just see if I can move you to the gist of this question, which is, are we looking at the new normal? I can tell you that tomorrow morning, a lot of people in Hempstead will wake up and fill up and they will find that the price of gas is over $4 a gallon. Is it within the purview of the government to bring those prices down, or are we looking at the new normal?"
- Candy Crowley, moderator of the second presidential debate
The Briefs (clips from recent Peak Oil News dailies are indicated by date and item #)