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1. Production and Prices

2. ASPO-Ireland's Depletion Model

3. The Goldman Sachs Forecast

4. Brazil's Deepwater Discovery

5. Energy Briefs

1. Production and Prices

Not even a bearish US stockpiles report showing unexpectedly large increases in crude and gasoline inventories could stop crude prices from advancing nearly $10 a barrel last week. The surge to over $126 a barrel on Friday was accompanied by increases in natural gas, coal, gasoline, and diesel prices. A number of factors contributed to the rapid increase including sabotage in Nigeria, renewed Turkish bombing of the Kurds, better prospects for the US economy, a sinking dollar, the possibility that the US would embargo Venezuela for aiding Columbian rebels, fighting in Lebanon, and a Goldman Sachs report suggesting that crude was on its way to $150-200 a barrel.

Dow Jones reported that OPECs production in April was down by 160,000 b/d, largely due to the Exxon strike and sabotage in Nigeria, and Moscow reported that its product exports were way down last month due to higher export duties.

US refineries were still operating at a relatively low 85 percent of capacity so the increase in US stocks was largely due to a jump in imports, which were a healthy 10.6 million b/d for crude and 1.5 million b/d for gasoline. Distillate imports, however, averaged an unusually low 187,000 barrels per day. That led to a drop of 100,000 barrels in US distillate inventories at a time when they should be growing.

Worldwide, the distillate situation continues to tighten with shortages starting to appear in many countries. Commentators are starting to note the possibility that the demand for diesel is an important factor in rising prices.

US gasoline prices rose to a national average of $3.67 and diesel to $4.27 on Friday. During the day, however, wholesale gasoline jumped by over 6 cents a gallon and distillates by nearly 13 cents, suggesting that still higher prices are in store for next week. The EIA now expects gasoline to peak at a monthly average of $3.73 in June although most analysts are now saying that $4 is more realistic.

The issue of whether or not $4 gasoline is causing significant demand destruction in the US remains cloudy. On Wednesday, the EIA reported that gasoline consumption during April was up 0.3 percent over 2007, while other sources including MasterCard pump sales data are saying that gasoline consumption may have dropped by as much as 6 percent. The EIA however is now forecasting that total US petroleum consumption in 2008 will drop by 85,000 b/d due to the economic slowdown and high prices.

Most long-time observers hold that oil prices have risen too far too fast, and that a major correction is in the offing. They maintain that it is the falling dollar and speculation that have driven up prices, hence the efforts in Congress to curb speculation. Rarely mentioned is the possibility that the worlds demand for oil has caught up with available supplies so that better-off consumers are now in a bidding war for dwindling exports.