January 2010 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate crude oil was virtually unchanged in January, rising by only $0.38 (0.4 percent) to $89.42 per barrel. That degree of stability likely occurred because of a slightly weaker dollar, and a modest rise in consumption of 135,000 barrels per day (BPD) -- to 19.1 million BPD -- during November that was offset by an equally modest January rise in crude stocks.
 

Click image for larger view

Click image for larger view

ASPO-USA summed up the current oil price situation as follows:

“The [last week of January] started with oil prices continuing to fall until Friday morning when NY futures reached an eight-week low of nearly $85 a barrel largely on signals that the Saudis would be increasing production to slow price increases. Weaker U.S. economic data and a jump in U.S. crude inventories helped the decline. On Friday, however, the seriousness of the demonstrations taking place in Egypt and other Middle Eastern countries set in and oil prices surged $3.70 a barrel in NY to close at $89.73 on fears that the protests could spread to other oil-producing countries. In London Brent crude rose to a daily peak of $99.63 a barrel, the highest level since September 2008. Friday saw the biggest one-day jump in crude prices since September 2009.

“Although Egypt produces only 670,000 BPD, the Suez Canal and the accompanying Sumed pipeline moves some 2.9 million BPD of Middle Eastern crude and products to European and other destinations. So far there have been no indications that the demonstrations to unseat Egyptian President Mubarak have slowed oil production or transport in the region.

“During the week, the gap between NY oil prices, which at one point were approaching $85 a barrel, and London prices, which closed near $100, increased to an all-time high of more than $12 a barrel. The problem remains at the NY futures delivery depot in Cushing, Okla., where Canadian oil arriving by pipeline crowds out tank space supposedly set aside for delivery of oil from expiring NY futures contracts, thereby pushing down NY oil prices. In London futures settlements are in cash so there is no need to deliver actual oil. Most observers are now saying that the Brent benchmark represents the current value of oil and that NY prices are a temporary technical aberration.

“In NY wholesale gasoline prices rebounded from a 15 cent per gallon decline and are now only a few cents below the recent highs established two weeks ago.

“Leaving aside the dangers of much higher oil prices stemming from widespread political unrest in the Middle East, the global oil market remains tight. Saudi Oil Minister al-Naimi predicted that strong demand from China and India this year would lead to an increase in global oil consumption of as much as 1.8 million BPD this year exceeding IEA forecasts of a 1.41 million BPD increase. While al-Naimi predicted that prices would remain stable and suggested increases in Saudi output, others are not so sure. IEA Director Tanaka called the oil price situation ‘alarming.’

“Goldman-Sachs suggested last week that oil may be entering a .structural bull market. as spare capacity is brought into production to meet rising demand. A leading Saudi bank says that the kingdom will increase production from 8.2 to 8.4 million BPD this year.

“A Chinese trade group announced last week that Beijing’s oil refining may increase by 7.5 percent this year. The Saudis already have announced that they will increase crude shipments to China’s biggest refiner, Sinopec, by 10 percent in 2011.”

Regarding the deepwater drilling ban, ASPO-USA had this to say:

“The standoff between the U.S. government and those seeking to resume drilling in the Gulf of Mexico shows no sign of easing. Last week the Interior Department said it is still refusing to issue deepwater exploration permits because the drillers have not shown they have immediate access to and can deploy containment devices to deal with out-of-control wells.

“The American Petroleum Institute (API) released a study warning that continued delays in issuing permits would negatively impact deepwater drilling in the Gulf as well as jobs and the nation’s energy security.

“The study claims that nearly one-third of U.S. deepwater drilling projects could become uneconomical due to the increased costs attributable to the new regulations. The API claims that unless the policies are reversed, as much as 619,000 BPD of oil and gas production could be at risk by 2019 or 12 percent of current U.S. daily production.

“In the meantime the new majority in the U.S. House of Representatives has passed a bill rolling back the government’s budget to the fiscal 2008 level. This bill would deny funding for the additional inspectors that the administration has sought in the wake of the Deepwater Horizon oil spill.