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Oil Futures Tank Amid Rising Inventories And Lower Demand
Light sweet crude plummets this morning after reports from the IEA yesterday that demand worldwide was down substantially from last year. The price of light sweet crude in New York went down as low as $49.10, over a dollar less from the close yesterday.
Brent North Sea crude, trading in London, went down a dollar to $49.07 and gas has gone down 4 cents a gallon to $1.44 a gallon.
The IEA report said yesterday that U.S. consumption dropped by 90,000 to 250,000 bpd or a 1.7% drop. Chinese economic growth, while still going, didn't climb nearly as much this year limiting their projections 470,000 bpd, this 7.4% is less than half of last years 16% from last year.
Europe really bottomed going down 170,000 bpd, down 1.1% from last year. With slower economic growth, heating oil isn't being purchased so much either. This trend of slowing economic growth in a number of countries may continue to shrink projections for the coming year and certainly in the fourth quarter.
The IEA also said non-OPEC oil countries had slightly higher projections too growing 55,000 barrels to 955,000 bpd. Right now, OPEC is running nearly full capacity and certainly the largest capacity in 25 years at 30 million bpd. They've thrown their quota system, set currently at 27.5 million bpd, out the window for the moment to meet demand although many feel the market is oversupplied right now.
DOE Says Inventories Are Up
The Dept. of Energy (DOE) weekly report came out yesterday and reported that inventories continue to climb worldwide and may be creating some storage issues in Europe and the U.S. It said with WTI inventories up, there's no reason ship much of the European stock over here. Crude stocks climbed 2.7 million barrels to 329.7 million barrels in U.S. inventories.
Gas inventories were up although only slight at 200,000 barrels to 213.7 million barrels. Both crude and gas are up substantially over a year ago with oil up 29.7 million barrels and gas up 11.2 million barrels.
The DOE also mentioned that contango continues to deepen. Their report said:
Crude oil inventories in the United States are at their highest levels since March 2002, with prices for West Texas Intermediate crude oil (WTI) remaining in contango (the condition where longer term futures contracts carry a higher price than shorter term contracts). This condition encourages inventory builds if the contango exceeds the costs of carrying the commodity for future delivery. So much stock building has taken place in the United States in recent weeks, that storage has reportedly tightened, contributing to a softening in U.S. crude prices, a deepening in the contango pattern, and a shift in import patterns.
Prices at the pump are also starting to drop a bit despite the Conoco/Phillips refinery going down for a couple of weeks with power problems and the myriad other refinery problems so far this year.
According to GasPriceWatch.com, the average price has gone down to $2.15 a gallon at the pump, down about dime from the average just a couple of weeks ago. They report the highest price in San Francisco at $2.99 a gallon and the lowest in Grayson, Ky. at $1.79 a gallon. Grayson is in northeastern Kentucky, near the Ohio/W.Va./Ky border.
Consumers are sure to continue watching as the summer driving season begins shortly on Memorial Day weekend in the U.S.
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