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Oil prices had a good week, closing out above $53 barrel despite much bad economic news. After concern about the possible consequences of the swine flu on Monday and Tuesday, prices moved up on reports of increased consumer confidence and investor hopes that the recession may be bottoming out.
Fundamentals supporting oil prices remain weak. Around the world crude stockpiles continue to build both in conventional storage and aboard chartered tankers. Rotterdam, Europe’s biggest oil center, is running out of storage and US stockpiles increased by 4 million barrels in last week’s report. Floating storage is now reported to total 100 million barrels of crude and 25 million barrels of refined products.
Demand for oil continues to be weak. In the US, demand for oil products is down to 18.4 million b/d, a 6.8 percent drop from last year and down 13.6 percent from the US all-time high (Feb 2007). Chinese consumption of petroleum products seems to have dropped sharply in the first quarter.
Most authorities continue to warn that the US and global economies still have a way to go before any sustained rebound is likely. Given the large amounts of crude in storage, it is unlikely that there will be much of an increase in oil prices until these inventories are worked off.
Last week saw the largest increase in US natural gas prices in six weeks. The number of rigs drilling for gas has fallen by 54 percent since September and it now looks as if US gas production in the 4th quarter will be 5 percent lower than in 2008.