For the fourth straight week crude oil inventories dropped unexpectedly. The loss this week was -4.6 million barrels extending the four week loss to -23.6 million barrels. That is a 7% drop in crude inventories in only four weeks. Crude inventories are now 13.5% below 2007 levels.
Imports were relatively unchanged and refinery draws declined. This suggests the current level of imports is too low to maintain adequate supplies. Refinery utilization fell to 88.6% from the prior week's 89.7% as the demand for gasoline declined after the holiday. Refiners are extremely reluctant to inventory crude at $135 a barrel when gasoline demand is slowing. They are already having trouble squeezing out a profit given the rapid spike in oil prices and the slow move higher in gasoline.
The $16 spike in oil from last week has only added 5-cents to the price of a gallon of gas pushing it to $4.04 on Wednesday. That 5-cents is about 25-cents below what it would take to compensate for the spike in crude prices. Service stations can't push prices higher because of competition and that leaves the refiners holding a very costly oil inventory. Amid constant news stories about falling gasoline demand the EIA report today showed that gasoline demand rose to its highest level since the week ending Dec-21st 2007. Obviously this was skewed by the Memorial Day holiday driving but it does show that demand is not as weak as we might think.
Additional news moving oil prices today:
Chinese oil imports rose 25% in May according to data released today. Reportedly China is stockpiling oil ahead of the summer Olympics and to cover increased demand after the earthquakes.
President Bush also threatened Iran with additional sanctions if they did not quit enriching uranium immediately.
The EIA slashed production forecasts on Tuesday blaming steep field declines, political conflict, lack of investment and delays in new projects.
Shell extended its force majeure on oil shipments fro Nigeria through July with no relief in sight from MEND rebel attacks.
BP said reserves were unchanged from the prior year indicating the difficulty of finding oil faster than we are using it.
Energy Secretary Samuel Bodman said he would attend the June 22nd meeting in Saudi Arabia on oil production, consumption and prices.