Thursday, May 2, 2013

U.S. Awash in Oil Inventories ... Oil Prices Falling

We have more oil in inventory than at any time since 1982. That's a surprising fact and the primary reason behind the dramatic drop in oil prices yesterday.

Now if the Obama administration will get off the dime and allow the construction of the Keystone XL pipeline to go forward, permit the growth of natural gas exports and not discourage other countless other job creating and revenue providing energy independence initiatives, energy costs will be lower for U.S. consumers and revenues will be higher for North America's producers and our government's tax receipts as well.

As to the impact of North American increasing energy supply on Europe as a whole and Russia specifically (including coal and natural gas), In Reversal, Neighbors Squeeze Russia's Gazprom Over Natural-Gas Prices says this in part:

"When Bulgaria pressed Russia's OAO Gazprom for a discount on critical natural-gas supplies in 2009, the world's largest gas producer refused to budge.

Last fall, it was Gazprom's turn to be pushed around. Bulgaria squeezed a 20% price cut out of the gas giant.

"They can't bully us in the way they could before, and their weakness in the negotiations showed that," says Bulgaria's former finance minister, Simeon Djankov, who helped negotiate the deal. "We got the sense they need us more than we need them, and we capitalized on that."

In Europe, where Gazprom once had a reputation for hardball tactics and dictating prices, customers are tapping new sources. Booming shale-gas production in the U.S. has freed up vast quantities of other fuel from around the world, including American coal no longer needed at home. With that new leverage, Gazprom's European customers have squeezed billions of dollars in discounts from the company, and they are pressing for more.

Europe is Gazprom's most lucrative market. The company supplies about one-quarter of the European Union's natural gas via a network of pipelines.

Gazprom has been the flagship of Russian leader Vladimir Putin's drive to make Russia an energy superpower. The company, which also controls Russia's fourth-largest oil producer, was created two decades ago out of the Soviet Ministry of Gas and is majority-owned by the state. By law, it is the only Russian company permitted to export gas.

The company's current struggles are affecting Russia's economy because it accounts for over 10% of export revenues. Earlier this year, Mr. Putin criticized Gazprom for letting exports decline, hurting government tax revenues. In March, government officials warned that stagnant gas exports were a big reason why growth will fall short of Mr. Putin's target of 5% a year.

In October, Mr. Putin called on Gazprom to adapt its strategy in response to what he called the "shale revolution.""


Now let's return to yesterday's action on the energy front and the growing inventory supply of oil and its effect on prices, world trade and North American energy independence.

Oil Futures Skid Lower as U.S. Stockpiles Soar has the story behind the price drop yesterday:

"Oil futures fell Wednesday after a report showed U.S. crude inventories rose to their highest level in more than three decades last week. . . .

The rise sent U.S. oil inventories to their highest level since the agency began reporting weekly oil stocks in 1982.

"There's no way you can spin that—that's a lot of crude," said Bob Yawger, director of energy futures at Mizuho in New York.

Light, sweet crude for June delivery fell $2.43, or 2.6%, to settle at $91.03 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled down $2.42, or 2.4%, to $99.95 a barrel.

The week's steep increase in stockpiles was due largely to a jump in U.S. oil imports to the Gulf Coast. The rate of oil imports to the U.S. still remains low, with last week's figure down 7.4% from a year earlier.

Weak oil and fuel demand have contributed to higher inventories in recent months. The EIA said its measure of gasoline demand fell 3.8% last week to 8.4 million barrels a day, as high unemployment continues to keep motorists off the road.

U.S. oil futures are down 7.1% from their recent peak in late January, a development that many analysts say is translating to lower gasoline prices. The average price for U.S. retail gasoline was $3.522 a gallon, down from $3.634 a month ago, according to auto club AAA.

Crude-oil prices also were dented by negative economic data Wednesday. In addition to a disappointing U.S. jobs report, China's manufacturing purchasing managers' index, or PMI, fell to 50.6 in April, below the 50.9 expected by economists. China has been the driver for much of the oil-demand growth since the financial crisis of 2008.

"All of these things over the last couple of weeks have reinforced the idea in the oil market that growth continues to be slow around the world," said Andy Lipow, president of Lipow Oil Associates, a Houston consulting firm."

Summing Up 

If we step up efforts to achieve energy independence in North America, energy prices will continue to come down and then will stay down even when the global economy eventually recovers.

All that's needed at home is some genuine public service from the government knows best gang, beginning with President Obama and his approval of the Keystone XL pipeline. Whatever happened to the quaint idea of government officials working for the benefit of We the People?

Doing so would help alleviate the high energy prices, lousy employment situation, weak consumer spending, our awful financial mess, Canadian relations and enhance national security, all good things for the 'middle class,' labor unions and everybody else in the U.S. as well. 

Just move the greenies to the sidelines, in other words. It's our country, too.

So when will the President gut up and do the reasonable and responsible thing? Let's hope it's real soon.

Thanks. Bob.

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