Crude Brushes $60, Settles Into Upper $50's
May 15th, 09
For the first time in 2009, the price of crude oil briefly touched $60 per barrel before settling in the upper $50 mark. The close link of crude prices to equity markets was evident in the crude price drop accompanying a 185 point decrease in the Dow Jones.
As oil prices increase, it is speculated that OPEC will start to ignore some of the production cuts it started in September of last year. Nationally, a government report was released this week showing a US crude inventory drop of 4.63 million barrels surprising analysts who expected a supply GAIN of 1 million barrels. Also in the report, consumption of crude oil in the US fell to 18.2 million bpd (barrels per day), a decrease of nearly 8% over 2008, and the lowest US consumption of crude oil in 10 years. According to Mary Novack, a 25 year industry veteran with IHS Global Insight, this drop in inventory means supplies are building elsewhere and there should exert some downward pressure on prices in the next few weeks. One place that oil is being stored for certain is the ocean. A leading shipbroker reports that there are close to 150 million barrels of crude oil and petroleum at sea. As the oil market is currently in contango, when oil for current delivery is cheaper than oil for future delivery, the situation makes trading firms seek an easy profit in buying oil for storage. 
For many, the rise of crude oil prices is a positive sign for the economy, a glimmer of hope that the global economy is back on track and recovering. CEO of ConocoPhillips James Mulva was one such person, speaking to a crowd in Houston. When oil prices fell, ConocoPhillips had to postpone large projects such as in the Canadian oil sands which required higher commodity prices to break even. ConocoPhillips' 2009 capital spending is slated at $12.5 billion, in comparison to nearly $20 billion in 2008. Mulva said that this has been the toughest period in the 36 years he has been working for the company and one focus would be to improve the company's stock price. ConocoPhillips (COP) neared the $100 per share mark last year and has most recently sat in the low $40's.
Norway is in the news for its expectations of the price of crude oil to rise 15% in the next year. Norway is the world's fourth largest oil exporter and released a government report expecting higher prices based on rising demand through 2009 and limited OPEC output. The report also showed that the country's production fell 7% for the month of April, from 2.15 million bpd in March, to 1.99 million bpd. This slight decline is cause for concern as it is a trademark in other non-OPEC oil producing nations, such as Mexico and the United Kingdom. The IEA continues its trend of cutting the oil demand forecast for 2009, this time for the ninth consecutive time marking the largest drop in consumption since 1981. Yet domestically, gas prices rose again, bringing the national average for a gallon of regular gasoline to $2.29.
For the short term picture the ongoing global recession will hamper consumption and demand while increasing US supplies, leading many analysts to believe prices could stabilize in the third quarter. Weak economic growth would attribute to keeping oil prices low over the course of the year, yet a report by the Wall Street Journal provided some hope in that economists see an end to the recession by this autumn. With the stipulation that it would take several years for the economy to fully recover, a surveyed group of economists pegged the current recession to end in August. Unfortunately, retail sales figures, unemployment reports and rising jobless claims continue to reflect a deep rooted problem which will be difficult to see a turn around in a span of three months. With many experts pinning the most recent rise of crude oil on speculation, it will be interesting to see where crude prices land on the doorstep of the driving season towards the end of the month.