1. Oil and the Global Economy
Oil prices moved higher last week resulting in the first weekly gain in more than a month on an increasingly serious Ukrainian situation and better US economic data. At week’s end NY futures were back up to $95.96 a barrel and London’s Brent was up to $103.19. Prices on both markets, however, are still about $10 a barrel lower than last June when the IS was threatening to overrun much of Iraq and the Ukrainian crisis was starting to heat up again.
The sustained price drop this summer was occasioned by increasing US shale oil production which is largely offsetting disruptions elsewhere; weaker demand for oil from China; and the growing belief that neither the worsening Middle Eastern situation nor the Ukrainian – EU standoff would lead to disruptions in oil supplies in the immediate future. In the past week, however, some traders are beginning to say that the summer’s selloff was overdone.
OPEC production in August increased to a one-year high of 31.0 million b/d due to increased output from Nigeria, of all places, Angola and Saudi Arabia. Iran and Venezuela registered production declines.
Lower crude prices have resulted in a drop in US retail gasoline prices over the Labor Day weekend to the lowest in four years. The average price for regular last week was $3.45 a gallon which is 25 cents lower than at the end of June. The decline in Brent crude from $115 a barrel to $102 has resulted in considerably cheaper oil imports for US refiners.
US natural gas futures which have been climbing since mid-August rose to $4.06 last week on the off-again, on-again prospects for warmer weather in the northern US which affects air conditioning demand. The Marcellus Shale, which is the only US formation with increasing natural gas production, saw a jump in its rig count to a five-month high last week. Contributing to the price increase last week was a smaller-than-expected surplus available for storage the week before last. Energy consultant Wood Mackenzie issued a glowing report on the prospects for the Marcellus last week. The report says that drillers are expected to spend $110 billion drilling 25,000 more wells in the deposit during the next 20 years. Some outside analysts, however, are saying that at $4 per million, shale gas is still not profitable for drillers who need considerably higher prices to make money.
resilience
