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1. Production and Prices

2. China

3. Food vs. Fuel

4. Brazil's Giant Field

5. Energy Briefs

1. Production and Prices

It was another week of steadily rising oil prices with crude moving from a low of $109.74 a barrel on Monday to new high of over $117 a barrel by Friday. By now the reasons for the continued climb are familiar stagnant production, shrinking exports, inceasing demand, a falling dollar, the flight to safety in commodites, declining US stockpiles, and, of all things, the perception of an improving US economy.

This week several new factors contributed to the increase. Reports that Russian oil production slipped during the first quarter for the first time in a decade, coupled with assertions by senior Russian oilmen that Moscows production is not going higher, was troublesome. Saudi King Abdullahs statement that he had ordered some new oil discoveries left untapped to preserve oil wealth for future generations also has serious long term implications for oil importers. During the week the Saudis said that they had trimmed output to 9 million b/d from 9.2 million.

Once again the weeks US stocks report showed low refinery utilization, unexpectedly large drops in crude and gasoline inventories, and distillate stocks up only slightly. The rapid drop in gasoline stockpiles, although still about normal, already is starting to raise concerns about sufficient supplies for the summer driving season which starts in five weeks.

Electricity shortages which are spreading to numerous countries across the underdeveloped world continue to increase demand for diesel as the only readily available way to generate electricty.

Finally, natural gas prices climbed seven percent last week and are now up 41 percent so far this year. US stockpiles, which last November were a record 3.5 trillion cubic feet, are now down to a post-heating season 1.2 trillion. To match last Novembers supply, inventories will have to increase by 77 billion cubic feet a week which is well above the usual 68 billion a week addition to stocks during the summer months. US natural gas prices are still too low to compete with world prices for attracting LNG cargos. Qatar said it is now sending LNG cargoes to China rather than the US and Europe because Beijing was willing to pay more. During the last two months, US LNG imports were less than a third of what they were last year. The temporary closure of the Independence Hub in the Gulf of Mexico to repair a leak may reduce the amount of natural gas available for storage by 30 billion cubic feet.

2. China

Beijing announced last week that, despite weakening exports and bad winter weather, GDP grew by a surprisingly strong 10.6 percent in the first quarter and industrial production was up 16.4 percent. An all-out but probably unsustainable effort to increase crude and natural gas production resulted in a 2.7 percent increase in crude and a 16 percent increase in natural gas during March. Coal output rose 18 percent to 211.3 million tons last month and electricity output increased 17 percent to 289.8 million megawatt-hours. The IEA now estimates that Chinas oil consumption will rise 4.7 percent to 7.9 million barrels a day during 2008.