Prices on the rise
Several days of strong buying have pushed oil prices back into the mid-$90/b range. On Monday, the market consolidated gains of more than $8/b in the past week. In London, the price for Brent crude for April delivery had increased to more than $95/b. In New York, the contract for March delivery of light sweet crude oil traded at up to $96.24/b.
The legal wrangle between ExxonMobil and the Venezuelan government continues to add strength to prices, despite assurances from President Hugo Chávez that the country will not stop oil exports to the US. Chávez says Venezuela would only consider cutting supply to its most important market "if [the US] attacks Venezuela or tries to harm us". However, the market remains vulnerable to sabre-rattling from either side.
Meanwhile, with the continued outage of some 1m b/d of oil from Nigeria and disruptions in the North Sea, better economic news from the US last week also added support to oil prices. In addition, the Federal Reserve has hinted that it may cut interest rates again to prevent a full-blown recession in the US. More economic data will emerge over the next few days as the financial reporting season in the US continues.
Despite the recent price increase, however, downward pressure persists. Opec and the International Energy Agency (IEA) are both bearish. The IEA has revised its demand projection for 2008 down by 200,000 b/d, to 87.6m b/d, as a result of weaker GDP-growth forecasts from the International Monetary Fund. Opec says demand for the cartel's crude in 2008 will be 31.5m b/d, a decline of 400,000 b/d compared with 2007.
Analysts say the US downstream demand also remains weak. Four-week average refined-products demand was 20.5m b/d by mid-February – 3% lower than in the same period last year. Although stocks typically fall by 4m-8m barrels a week at this time of year, last week, downstream stocks moved back into surplus says investment bank UBS. A cool spell of weather – expected in Asia and the US – could reverse that trend.
Price drivers this week:
- US weather forecasts
- US stocks and financial data
- Threats to supply (Venezuela and Nigeria)