There has been little production news in the past few days so oil prices have been taking their cues from the equity markets and economic developments. The NY Times ran a story on Monday about the unusual discipline that OPEC has been showing in cutting production. The Times estimates that so far OPEC has made about 75 percent of the pledged cuts with more to come. Oil traders, however, continue to express concern that demand may be falling faster than OPEC can cut production. The IMF again has reduced its forecast for global economic growth this year to 0.5 percent, the lowest since World War II. This will likely trigger an IEA reevaluation of global oil consumption for 2009.
Oil climbed as high as $48.59 on Monday, but then collapsed to close on Tuesday at $41.58 on concerns about US consumer confidence and falling home prices. The American Petroleum Institute, which is now releasing its stocks report the night before the EIA report is released, showed crude supplies increasing by 800,000 barrels, but the Wednesday EIA report showed a 6.2 million barrel increase. The organizations use different methodologies, but this is an unusually large difference.
The surprise in the EIA’s report that kept prices nearly unchanged on Wednesday was a 120,000 barrel decrease in US gasoline inventories as compared to market expectations of a 2 million barrel increase. US refining is still at unusually low levels and Valero is threatening to close 15 refineries if it cannot find buyers. Despite constant recitation by oil traders that demand for oil is dropping, the EIA still maintains that total US oil products consumption is down by only 4 percent over last January and gasoline consumption is down by only 1.7 percent.
Some of the oil that has been stored on tankers for the past few weeks has been sold and is starting to move towards refineries, suggesting that the OPEC production cut is beginning to take hold as refiners must purchase from stockpiles.