Developments this week
NY oil prices continued their slow downward trend that began in early January, closing on Wednesday at $97.61. London crude, which has been slightly stronger, continued to trade around $111 a barrel. The day’s moves widened the NY/London spread to $13.95, the widest since November. So far this week there have not been any major developments in either the EU’s debt crisis or the Iranian confrontation to move the markets.

The EU summit adopted some new and tougher measures to enforce budget discipline in the Eurozone but so far there has been little progress on the conditions for the next Greek bailout. Portugal had some serious problems at its bond auction and may soon join Greece on the list of those with serious troubles.

The Iranian confrontation has been focused on the visit of the UN’s nuclear inspection team to Tehran to explore whether there is room for compromise over the inspection of Tehran’s nuclear facilities. Initial indications are that the talks went well and the inspectors will be returning to Tehran shortly for further talks. Although the talk of cutting oil supplies resumed on Monday, the rhetoric coming out of Tehran has been more subdued than in recent weeks. The Saudis continue to say that they can increase production to 12.5 million b/d and make up for any lost Iranian oil if necessary.

Many are still saying that Tehran’s reasonableness this week is just a ploy to buy time. Alternatively, the rather harsh words that China’s Premier recently had for Tehran’s behavior in this affair just might having an impact on what is clearly a rancorous debate within Iran’s ruling circles. The continuing bloodshed in Syria and the likely fall of the Assad government may be contributing to the moderation.

This week’s US stocks reports contained a number of surprises. US crude inventories climbed by a more-than-expected 4.2 million barrels and total commercial petroleum inventories were up by 8.4 million barrels. US gasoline consumption slipped last week to 7.9 million b/d, the lowest since 2001. Gasoline consumption during January was down by 7.3 percent over last year. Total US oil consumption dropped to 17.7 million b/d, the lowest since 1999. With oil consumption still falling in the US, it is difficult to see that much of an economic “recovery” is taking place.

Although there is some optimism about better-than-expected production numbers in China, Japan, India, and Germany, the Baltic Dry Index which measures shipping costs for bulk commodities (coal, ores, grains, etc.) sank 61 percent in January to a 25-year low.

NY gasoline futures, which have been climbing steadily for the last six weeks due to the closure or impending closure of several East Coast refineries, hit $2.95 a gallon on Wednesday before the news of weak demand in the stocks report sent them back down to close at $2.89. The news that Conoco had restarted the refinery in New Jersey contributed to the lower close.

US natural gas futures took a 33 cent per million drop on Wednesday to 10-year lows on warmer weather and expectations that EIA data out Thursday will show growing inventories.