A rare conjunction of political events, economic undercurrents and climatic exigencies contributed to oil touching a record $55 a barrel in recent weeks. Political strife in Venezuela, ethnic troubles in Nigeria, terrorism worries in Saudi Arabia, supply disruptions in war-torn Iraq, fears about a diminished flow from Russia in the wake of troubles at oil giant Yukos, Hurricane Ivan in the US and rising demand in China all exerted upward pressure on global crude prices.
The London based Center for Global Energy Studies in its Monthly Oil Report (MOR) issued on Nov. 22, says it does not believe that a price slide has begun. It feels that the price behavior of the crude would depend to a very great extent on severity of winter in the Northern Hemisphere.
“US heating oil stocks are as low as they have ever been for the time of the year over the last decade and well below the levels seen at this point in each of the last two years. While they are probably sufficient to meet demand if the winter is mild, they will not do so, if it is severe,” the MOR projected.
The US heating oil inventories are already over 10 million barrels or 21 percent below this time last year. This came despite a sharp 3.2 percent rise in refinery capacity use. In the meantime, the US demand for distillate fuels — heating oil, diesel and jet fuel — has stayed strong over the last four to five weeks, around seven percent higher above the same period last year.
The Japanese stock of kerosene, used for heating, despite rising over the last couple of weeks on higher refinery output, remained 10 percent below last year’s level.
Heating oil stocks in Germany, Europe’s largest oil consumer have also been reported at the lowest in November for at least 20 years. Inventories in Germany failed to build last month, staying at 60 percent of capacity at the beginning of the month — 15.6 million barrels down on last year.
And despite the refiners having access to a plentiful of crude, because of the above average output from the OPEC, many analysts strongly feel that in case severe winter hits the northern hemisphere, demand could outstrip supplies of heating stock.
Then despite a somewhat slow down in the Chinese crude buying pattern, it has been reported that the Chinese operational inventories are currently being run down.
Hence China may have to return to the crude markets, sooner rather than later, with the same force and zeal, exerting additional pressure on the already thinly spread markets.