1. Oil and the Global Economy
After much volatility last week prompted by the Ukrainian situation, oil prices fell on Thursday and Friday to close at $93.29 on NY and $100.82 in London. The Ukrainian partial-ceasefire, lower than expected US jobs growth and well-supplied crude markets were responsible for the decline last week. Crude prices have now fallen by some $12-14 a barrel since late June and many analysts are talking of further declines. Demand is perceived as weak in the US , Europe, and China; the threat to oil supplies related to the Ukrainian and Middle Eastern situations are now seen as much lower than earlier in the year; and we are entering two months of refinery maintenance when the demand for crude will be lower. Last week’s US stocks report showed little change in production, imports, and inventories.
US gasoline prices continue to fall with the end of the summer driving season. The AAA says the national average for regular is now down to $3.44 and a further 20 cent fall is expected in the next two months with some areas of the country experiencing sub-$3 gasoline. The US automobile industry is reporting that sales of electric and hybrid vehicles have slumped and SUV’s are doing well as is normal in times of “cheaper” gasoline.
Last week a US federal judge ruled that BP had indeed acted with gross negligence and willful misconduct leading up to the 2010 Deepwater Horizon disaster. This ruling opens BP to a potential government fine of some $18 billion on top of the $28 billion the company has already paid out for damage claims and cleanup costs. While analysts are saying that BP has enough resources to handle a fine of this magnitude in the long run, the $50 billion cost of the spill is clearly going to give oil companies second thoughts before launching risky new drilling ventures, particularly in the US and Canadian arctic where oil spills will be difficult to contain, and penalties for damaging the environment are likely to be heavy.
The new CEO of Royal Dutch Shell made an unusual admission last week when he said publicly that the company’s returns are too low. Shell no longer has sufficient crude production or lucrative prospects to exploit so that the only solution may be to shrink the company. The same problems are facing several other international oil companies so that we may see a much smaller oil industry ten years from now. This, of course, is exactly what those who understand peak oil have been expecting for many years.
resilience
