Peak oil review - Oct 22

by Tom Whipple, originally published by ASPO-USA | OCT 22, 2012

1. Oil and the Global Economy

Oil traded in a narrow range until Friday when an accumulation of economic problems such as weak demand, growing inventories, and a seeming lack of progress at the EU summit meeting sent prices down more than $2 a barrel. The futures market closed out the week at $90.05 a barrel in NY and $110.14 in London. Widespread pessimism about the global economy coupled with a lack of any immediate threats to Middle Eastern oil supplies are held responsible for Friday’s decline.

US gasoline prices are finally dropping as they usually do after Labor Day with the nationwide price of regular down to $3.67 a gallon from $3.83 a month ago. Gasoline futures are down 25 cents a gallon in the last two weeks. In California, where they are still having refinery problems, regular is going for an average of $4.44 a gallon. While US crude inventories are at their highest level for this time of year since 1982, gasoline and distillate inventories are pushing record lows despite weak demand. The API reported last week that US oil demand in September fell 3.8 percent from last September to 18.2 million b/d. Northeastern US distillate inventories, where most of the demand for heating oil takes place, are down to the lowest on record and weather forecasters are already talking about a colder and snowier winter ahead in the region.

US natural gas futures dropped midweek on forecasts of milder weather across most of the US in the week ahead; by Friday however, new forecasts of colder weather in November, the possibility of a cold winter in the northeast, and shrinking natural gas inventories led to a jump in futures prices. Natural gas closed on Friday above $3.60 per million BTUs after having traded below $2 in the spring when the gas glut was at it height and there were fears that the US would run out of storage space.

2. Middle East

The New York Times, citing administration officials, reports that Iran is willing to open direct talks with Washington on the nuclear question after the US elections. Tehran and the White House, however, have denied that any agreement for talks has been reached, but the White House says it is open to the suggestion.

The possibility of talks boosts the administration’s case that sanctions rather than military action is the proper way to handle the situation. Others are already saying that direct talks are merely another attempt by Tehran to stall for time as it continues to work on its nuclear weapons program.

Meanwhile the US and EU imposed further sanctions on Iran’s oil and gas industries last week. Many of these new sanctions are designed to close loopholes that have arisen as Tehran scrambled to find ways around the sanctions. The EU’s sanctions involve freezing the foreign assets of some 30 Iranian companies doing business in the West.

Iran is attempting to portray any strike on its nuclear facilities as a step towards a regional or “global’ war with retaliation taking place against US and Israeli interests. Der Spiegel reports that Tehran is contemplating blocking the Straits of Hormuz with a giant oil spill. Although Iran’s exports would be disrupted too, the theory is that the shutting in of most Middle Eastern oil exports would force the lifting of the sanctions. More