Oil Prices Head Up After EIA Report
After anticipation of rises in both crude oil and gasoline supplies, U.S. inventories dropped in both categories according the weekly Department of Energy report. As a result light sweet crude might an ugly, sour rally in midday trading.
Light sweet crude opened at $53.30 this morning in New York and dropped a dime at one point. The energy report came and the oil prices went, hitting $55.55 at one point before dropping back to $54.50.
Brent crude from the North Sea also traded up after opening at $52.85 to $54.30 before dropping a bit to $53.85. July contract gasoline was also up a couple of cents to $1.54 a gallon.
The reported a 3 million-barrel drop in U.S. crude inventories to 330.8 million barrels after analysts in Reuters anticipated a slight rise. Gasoline was expected to go up 900,000 and fell far short of that mark, actually going down 100,000 barrels. The report does say however that inventories are still far above the average for this time of year.
This shows that oil refineries are cranking buying more oil and consumers are driving away with it as quickly as they can get their hands on it. The report backed this up saying consumers are buying 2.4% more than June of last year at 9.4 million barrels a day.
Oil refineries continue to ramp up capacity going to 96.4% which means they move ever closer to full capacity. Since no new refineries have been built in over two decades, this stresses not only the need for more capacity but the also the possibility these aging facilities could have major problems. Their spring track record would indicate this as a number of refineries have had tremendous problems keeping their capacity up.
Distillates remain another area of close scrutiny. Distillate inventories went slightly more than anticipated, hitting 1.3 million vs. 1.1 million barrels a day. This is good because heating oil consumption has been unseasonably high during a time of year when supplies are expected grow and distillate prices on heating oil and diesel are expected to drop, something unseen yet this year.
The prices also climbed despite OPEC saying they plan to kick up production by half a million barrels if trends continue. The OPEC chief Sheikh Ahmed Fahd al-Sabah will make this recommendation at OPEC’s monthly meeting next week. This will take their total to about 31 million barrels a day.
“If prices continue at this high level, I will, as Opec president, propose to increase this (production) ceiling by 500,000 bpd at the Opec ministers’ meeting in Vienna” said Ahmed Fahd al-Sabah, also Kuwait’s energy minister.
Right, much effort is being put into finding alternatives for oil supplies than the current structure. OPEC controls nearly half of the world’s oil production and a significant portion of their supply comes from Saudi. Until the world will find alternatives to fossil fuels and since oil consumption only expected to rise and prices expected to climb above $60 a barrel, alternatives must be found.
Some new players are coming out and old players are being dealt back into this card game. One example of a new player is the new pipeline built in former Soviet states. The pipeline running from the Caspian Sea area runs across Azerbaijan through Georgia and heads to Turkey, where it’s loaded onto tanker for sale. This pipeline should be at capacity in by August and will pump a million barrels a day.
An old player being dealt back in is Libya. Occidental Oil is shelling out a lot of money to help Libya redevelop its oil industry. Libya, an original OPEC member, has had many problems under economic sanctions from the U.S. and others. Since the Libyan strongman, Mohammar Quadaffi, accepted responsibility and paid some reparations for blown up passenger planes, the U.S. has lifted most of its economic sanctions and allowed U.S. companies to go back into Libya. Those companies hope that Libya has reserves that rival Saudi and in turn would make Libya the #2 producer behind Saudi. The problem there will be bring their facilities up to date as nothing’s been done since before Ronald Reagan was president.
Another old source could be oil-enriched shale from the Rocky Mountains. It’s been tried in the past and oil was squeezed out but the process was costly and with oil prices extraordinarily low in the 80s and 90s, it wasn’t cost effective to extract oil from the rock. But with oil prices continuing to climb, many are revisiting the idea and some researched estimate as much as a trillion barrels may be locked up there. That’s a lot of oil.
John Stith is a staff writer for WebProNews covering technology and business.