Oil prices rose to a two-month high on Wednesday after the EIA’s weekly stocks report showed crude and distillate inventories falling and petroleum consumption rising to the highest level this year. New York futures closed at $89.51 up from $86 early last week and London’s Brent closed at $110.37 up from recent lows around $106. Prior to the bullish stocks report prices had been rising on expectations that the fiscal cliff negotiations would soon be concluded thus avoiding a large tax increase and a $600 billion cut in federal spending come January 1st.
By Wednesday, however, progress in the fiscal cliff talks seemed to stall as both sides exchanged recriminations and the President threatened to veto the Republican plan should it be approved by the Senate.
While US crude and nationwide gasoline inventories are above normal, distillate inventories, which already were well below normal, fell by another 1 million barrels as demand for distillates surged last week by 20 percent to 4.21 million b/d. Distillate stocks in the Northeast are now at 117 million barrels, the lowest on record for this time of year. Some analysts are questioning whether shortages might develop next year.
Falling gasoline inventories in the Northeast contributed to the jump in crude prices and pushed gasoline futures, which traded below $2.60 a gallon in early December, to a close of $2.74.
Natural gas futures have been volatile this week, rising on Monday and Tuesday on forecasts of colder weather next week and falling on longer range forecasts that temperatures in January will be closer to normal. Unusually warm temperatures in recent years seem to have conditioned traders to question skeptically forecasts of normal or below temperatures. Thursday’s natural gas inventory report is expected to show stockpiles shrinking as is normal in December, but at a slower rate than usual.
Elsewhere in the world, business confidence in Germany is improving despite new forecasts of a European recession next year; Moscow is sending ships to evacuate the 5,000 Russian citizens living in Syria as the rebels continue to advance slowly towards the center of Damascus; bombs continue to go off in Iraq where the President, a Kurd, has suffered a serious stroke, further complicating the delicate political situation in the country.
Venezuelan President Chavez has developed a respiratory infection making it even more unlikely that he will be in any shape to be sworn in for another term on January 10th.