1. Oil and the Global Economy
New York oil futures climbed some $2.50 a gallon last week to close Friday at $93.50. Meanwhile Brent futures sustained a 1.4 percent loss for the week, closing out at $97 a barrel thereby reducing the WTI/Brent spread to $3.45. US futures were helped by an unexpected drop in crude stocks; higher than normal refinery utilization rates; an unexpected jump in the US GDP during the 2nd quarter; and concerns about a gasoline supply shortage along the east coast. In general oil traders believe the demand for oil products in the US is growing, while demand elsewhere is shrinking.
The continued growth in US tight oil production is raising hopes for better times ahead. The EIA expects US crude production to grow to the highest level in 45 years during 2015 when it will reach an average of 9.5 million b/d. US oil imports are to shrink to only 21 percent of US consumption. Wood Mackenzie, a perpetually optimistic firm of energy analysts, says that new techniques of producing tight oil will be in use by 2020 that could increase recovery rates by 100 percent and send production US oil production up by 1.5 to 3 million b/d.
The recent price decline has many crude exporters, who have become dependent on high oil prices, calling for lower OPEC production in order to drive prices higher. Iran, which is now saying that world prices could fall to $90 a barrel by next March, has been calling for lower OPEC quotas, especially for the Gulf Arab states whose production is not constrained by other factors. Although OPEC’s Secretary General suggests that the cartel could lower the 30 million b/d quota at its November 27th meeting, such a cut has not yet been agreed on, and OPEC’s most recent report suggests that demand for its oil will slip to 29.2 million b/d next year anyway.
resilience
