June 21, 2007
Do high crude oil stocks point to lower prices?
The price of oil fell sharply on Wednesday (FT story here) after US Energy Information Administration figures showed US crude stocks rising by 6.9m barrels to their highest for nine years. The figures have been challenged; a note overnight from Adam Robinson of Lehman Brothers asks: "Is the US refinery system broken, or are EIA surveys?"
But taken at face value, the data certainly support the Opec argument that there is no need for its members to raise production yet, because it is not a shortage of crude supplies that are driving gasoline prices higher, but low refinery utilisation. Whether the high level of stocks means the price of oil is going to fall, however, is another matter. It is often argued that refining tightness also pushes up the cost of crude, and even without that effect, the supply / demand balance for the second half of the year looks tight.
For now, meanwhile, the oil price is supported by the Nigerian general strike. This threatens oil exports only if prolonged, my colleague Dino Mahtani writes from Lagos. Edward Meir of Man Energy argues: "expect another modest leg lower [in the opil price] if the government buckles and ends the strike by rolling back price increases, as we expect them to do."
However, at the Oil Drum blog, Jeff Vail, an energy analyst with a homepage here, warns against ignoring the importance of "above ground factors" such as political disputes, strikes and armed conflict. He writes: "What we should not do is think that ‘above ground’ somehow means either ‘temporary’ or ‘less serious.’
