The first part of last week was dominated by concern over the sagging world economy and the expiration of the February futures contract which at one point sent oil below $33 a barrel. Lack of sufficient storage for crude in the US has been causing technical distortions to the US oil markets of late as futures contracts expired and the time came to take delivery of oil. The next three days saw steadily rising oil prices as hopes that the Obama administration would be able to ease the economic crisis took over. The US stocks report, which was released on Thursday last week, momentarily stopped the price rise as crude and product inventories increased far more than expected.

On Friday, however, traders professed to be baffled as prices jumped 6 percent to close at $46.67 a barrel, suggesting that the 4.5 million barrel OPEC production cut currently underway is starting to take effect.

Total oil product consumption in the US now is down 4.7 percent as compared to the same 4 week period last year.  Much of this decline is due to a nearly 14 percent decline in the consumption of jet fuel, a 9.9 percent drop in the consumption of residual fuel oil and a 7.2 percent drop in propane/propylene. Consumption of gasoline, which makes up nearly half the US demand for petroleum products, is down by only 1.6 percent and diesel/heating oil is down by 2.6 percent.

Weak factory demand for natural gas in the US has forced prices down to the lowest level since September 2006 despite cold weather in much of the country.

Analysis of the latest world production figures shows a 1 million b/d jump in total liquids production between September and October 2008 after a steep decline from the July 2008 production peak. According to the IEA production was steady at around 85 million b/d in November and December.

The IEA estimates that OECD consumption in November 2008 was nearly 3 million b/d lower than in November 2007 and that Chinese consumption in November dropped by nearly 1 million b/d from October. If, after revisions, these numbers prove correct, it is clear that amounts of oil well in excess of demand were coming onto the world markets last fall.