• Print
• E-Mail

1. Production and Prices

2. China

3. Blackouts and Shortages

4. Washington

5. Energy Briefs

1. Production and Prices

Oil prices fell by $10 a barrel during the first part of last week on reports of a more conciliatory attitude in Tehran, a rising dollar, and profit-taking. On Thursday and Friday, oil jumped by more than $10 a barrel to touch an all-time high of $147.25 on reports, later denied by the Pentagon, that Israeli aircraft were rehearsing for strikes against Iran over Iraqi airspace and on well-publicized Iranian missile tests. A statement by the MEND that they are going to renew attacks on Nigerias oil infrastructure contributed to the price spike. Despite the $10s worth of volatility, oil closed out the week at $145.08, down 21 cents from the previous weeks close.

The Wednesday stocks report showed a 5.9 million barrel decline in US crude inventories, a small increase in gasoline and distillate stocks, and a 2.1 percent decline in US gasoline consumption.

The International Energy Agencys monthly report has OPEC production up by 350,000 b/d last month and Saudi production up to 9.45 million b/d. Although high prices will flatten OECD demand for oil during 2008-9, high demand from Asia will continue to lift world wide demand. Declines in the US crude stockpile restricted the May increase in all of the OECD countries to 24 million barrels half the normal increase. Preliminary June data suggests that the OECD crude stockpile increase was only about 100,000 b/d during the second quarter well below the 900,000 b/d increase which is normal for the second quarter.

2. China

The specter of serious power shortages across China this summer looms larger as more provinces are reporting problems. According to BPs Statistical Review China is a very inefficient user of energy. Couple this with drought-induced shortages of hydro-power, the recent earthquake, various kinds of price caps on power and coal, and efforts to improve Chinas abysmal coal mine safety record, and one has the perfect recipe for power shortages in a economy that is growing at 10 percent a year.

Beijing obviously will pull out all stops to ensure that shortages do not mar the August Olympics, even at the cost of slowing economic growth. In June Chinese aluminum exports jumped 43 percent. Chinese aluminum smelters are estimated to consume as much power as 100 million people. Already power for the aluminum industry has been cut by 10 percent.

The real issue is what will happen after the Olympics. During the major power shortage four years ago, China stepped up oil imports to keep many enterprises functioning with backup power generators. Given the much tighter coal and oil market that exists in 2008, any increase in imports likely would result in still higher world prices.