1. Oil and the Global Economy
Oil prices dropped once again last week with London’s Brent hitting the lowest in more than two years, closing on Friday at $97.11 a barrel. New York oil futures were more volatile, but closed at $97.27, leaving the WTI-Brent spread at $4.84. As has been the case for the last three months, generally weak demand and ample production has been overwhelming fears of supply disruptions stemming from the Middle East or Russia. Last week all the major report agencies – the EIA, IEA, and OPEC – reported that they had cut forecasts of global consumption for the remainder of the year and on into 2015.
The EIA reported that the US produced 8.59 million b/d the week before last, which was down a bit from the preceding week, but was 845,000 b/d more that during the same week last year. It is this continuing growth in US shale oil production that is keeping the markets well supplied and has cut US oil imports by about 6.8 percent from last year. Imports of Canadian oil into the US are up 27 percent from last year.
Last week’s US stocks report showed that while US refining was still relatively strong, inventories of distillates had increased by 4 million barrels and stocks of gasoline by 2.4 million. Total US fuel consumption was down by 6.8 percent to 18.6 million barrels, the least since June. China’s factory production fell to the lowest in six years in August. Beijing, however, has been taking advantage of the relatively low oil prices to add an unknown quantity of crude to its growing strategic reserves. This makes judging China’s consumption more difficult, but presumably lower factory production translates into less oil consumption.
US natural gas prices were up slightly for the week to close at $3.85 per million. Prices fell on Thursday after a government natural gas storage report showed inventories increasing by more than analysts had expected. Bernstein Research says it has cut its 2015 price forecast to $4 per million from $4.50. Bernstein says that US natural gas production will grow by 3 billion cf/d next year while demand, largely driven by the closure of coal fired power stations, will grow by only 1.2 billion. US natural gas production in the first half of 2014 grew by 4.1 billion cf/d over the first half of last year.
2. The Middle East & North Africa
resilience