February 2011 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate crude oil was virtually unchanged in February, rising by only $0.16 (0.2 percent) to $89.58 per barrel. That degree of stability likely occurred because the effects of a slightly weaker dollar and a substantial rise in consumption of 685,000 barrels per day (BPD) -- to 19.8 million BPD -- during December were offset by a continued rise in crude stocks during February.
 

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

“[During the last full week of February] the oil markets were dominated by the Libyan uprising. Brent crude nearly touched $120 a barrel on Thursday before settling to close Friday at $112 after President Obama, the IEA, OPEC and the Saudis all assured the markets that the shut-in Libyan crude would be replaced. Areas controlled by the protestors in Libya increased during the week as numerous armed forces units announced their allegiance to the revolution. By week‘s end, security forces still loyal to Gadhafi controlled little more than parts of Tripoli and some small towns. Oil production seems to have fallen by at least 75 percent as foreign oil workers fled the country. Any remaining production will likely go to domestic refineries with little if any available for export. Rumors that Gadhafi intends to sabotage oil facilities continue to surface. The natural gas line from Libya which supplies about 10 percent of Italy‘s consumption has been closed by the disturbances….

“In NY, oil continued to trade about $14 a barrel lower than in London, closing near $98 a barrel after reaching $103.41 on Thursday. U.S. crude inventories increased by 800,000 barrels the week before last, but total commercial inventories fell by 12 million barrels.

“Beijing increased retail gasoline and diesel prices this week, a move some believe will stimulate demand for crude by making oil refining more profitable. It is still not clear how a major crop failure in China will affect the country‘s demand for oil, but drought continues in the country’s grain growing region….

“Oil prices fell rapidly on Thursday after assurances that even a prolonged outage of Libyan oil production could easily be compensated for by increased OPEC production and withdrawals from strategic reserves. As the shutdown of Libyan oil production seems to be growing and soon may be total, the question of just how much sustainable spare capacity OPEC really has may soon be answered.

“At week‘s end there were reports that the Saudis had increased their production to over 9 million BPD from the 8.6 billion they pumped in January. As the winter heating season slackens, this is the time of the year when there is usually a decrease in demand and indeed Oil Movements, the leading tanker tracker, is forecasting a 310,000 BPD drop in OPEC shipments between mid-February and mid-March.

“Most of Libya‘s exports consist of light, sweet crude which is shipped to refineries in Europe that can only refine the better grades of crude. If OPEC is to “replace” the lost Libyan production, it must not only come up the necessary quantities of oil but also the right qualities. Last week there was discussion of redirecting shipments of the light West African crudes to Europe and letting the Saudis send more oil to Asia which can better handle the heavy sour crudes.

“During the week there was much discussion of OPEC‘s 4 or even 6 million BPD of spare capacity. Many experienced observers remain skeptical that anywhere near this quantity can be brought into production quickly. So far we have one unofficial report that the Saudis have increased output by 400,000-500,000 BPD, way below what would be necessary to compensate for what seems likely to be the lost Libyan production of 1.6 million BPD. Indeed if the Saudis are to compensate for most of the lost output, they would have to exceed the 10 million BPD figure that many doubt they still can, or would want to, achieve.

“The other option is to draw on what the IEA says is 1.6 billion barrels of already produced reserves. Some of this, however, is simply part of the production pipeline and is not available for use elsewhere. Objections are already being raised about tapping strategic reserves just to control prices. With the possibility that other Middle Eastern oil producers could be subject to domestic unrest many feel that these reserves should be saved for truly critical situations.

“This question should be resolved in the next few weeks when shortages of Libyan crude start developing at European refineries. Either OPEC will have increased production of the right grades of crude sufficiently to offset the loss, the IEA will have authorized releases from stockpiles, or oil prices will be still higher.”