The week just ended can't help but leave everyone gasping for air.
Between last Friday and today, June NYMEX crude rose about $2.50. Given everything that happened this week on the supply side, it might be considered stupendous that it didn't go higher.
Actually, it did go higher: just based on exchange settlements, records were set this week for WTI (all-time high trade of $119.90 and settlement of $119.37, both on Tuesday, which was expiration day for the May contract;) Brent, $117.56 all-time high trade today and $116.46 settlement Wednesday; RBOB gasoline, $3.0537 settle, $3.0815 trade, today; heating oil, $3.3250 and $3.35 settle and trade, Wednesday; and ICE gasoil, $1,085.75/mt settle and $1,089 trade, both today. Additionally, many Platts' physical settlements all set records this week.
Must be those speculators, eh? Must be the week dollar, right? Just consider what happened recently in the fundamental equation of supply and demand, much of it this week:
--Late last month, Mexico released its first-quarter production numbers which showed crude down a whopping 10.5% in March to 2.847 million b/d versus the same month a year ago.
--Earlier this month, Russia said its crude output fell 1.2% to 9.72 million b/d year over year, which followed decreases of 0.7% in both January and February.
--At the same time, voracious oil consumer China said its first-quarter oil demand was up 8.8% year-over-year to around 7.39 million b/d.
--A Nigerian strike shut in 770,000 b/d of ExxonMobil output and Shell declared force majeure on 169,000 b/d of crude from its Bonny terminal. Shell also confirmed another pipeline had been sabotaged in the eastern Niger Delta.
--Ineos shut its 200,000 b/d refinery at Grangemouth in Scotland ahead of a two-day planned strike there. The Forties Pipeline System in the North Sea had to close as a result. Take another 600,000 b/d of supply off the market.
--Libya shut in 45,000 b/d of crude production due to a drilling problem at one of its offshore fields, which may take up to two weeks to resolve.
--Think it's the dollar? The OPEC basket of crude, made up of numerous grades of crude produced from OPEC member countries, has set record highs in Euro-basis terms almost every day this month, according to Barclays analyst Paul Horsnell.
--Deutsche Bank analyst Adam Sieminski told Platts that he doubted that speculators are behind rising oil prices. "In
virtually every academic study I'm aware of, speculators do not cause prices to go up," he said. "Speculators sometimes exacerbate trends, but generally they're market followers." In fact, the number of non-commercial long positions reported by the Commodity Futures Trading Commission is not significantly higher over the past few months. It fluctuates week-to-week, but has not undergone a stunning rise.
No, maybe this is all tied to fundamentals. It's tough to acknowledge, but the evidence is strong. Let's see what next week brings.
Remember the days, just an eyeblink ago, when everyone was watching their screens as oil flirted with $100/b? Now analysts have already begun another threshold-watch, daring to suggest oil could hit $200/b or even $250/b.
Of course, some peak-oil experts have been warning for years of dire consequences if the US fails to open up ANWR or other banned oil-prone areas, develop alternative supplies or ... (fill in the blank with your favorite remedy). But last week's cavalcade of supply jolts has even the experts reeling from the rapid-fire pace.
Consulting industry analyst Philip Verleger, for example, said this week that oil could hit $200/b by year-end, claiming there is "nothing right now in the way of slowing this price rise down." And while Deutsche Bank stresses it is not predicting $250 oil, an April 25 report by the investment bank claims that price represents the hypothetical extreme oil value" based on the history of what it calls the last "super-surge" in prices that occurred from 1970-73 to 1980-83. That 10-year period was one of two major disruptions during the period -- the Arab oil embargo after the Yom Kippur war and the collapse of Iran's oil industry following the fall of the Shah, which drove up WTI by a factor of 10, from $3.50/b to $35/b. Anyone who drove a car during that time, remembers how gasoline prices doubled during the first shock in mid-decade and then doubled again in 1979, both times resulting in scarce supplies and long lines at the pump.
Many analysts, however, still see oil settling back to more comfortable prices in the $80-$100/b range. For instance, Deutsche Bank cites "one of the 'best' econometric models" points to $90-$100/b oil, given oil reserve levels that are "not ... alarmingly low." Weeden & Company analyst Charles Maxwell told Platts last week that the world is currently in a "period of adjustment" of demand as consumers cope with high prices by cutting back on consumption patterns.
"We'll consolidate awhile," he said. "I think we'll come back to about $80/b. It takes time for these decisions to be made."