Political agenda determined the price trends with the capture of British soldiers by Iran in March. Even though Iran released them almost two weeks before, oil prices preserve their high levels in the markets. Especially, Brent oil increased almost 13.5% in a month and became $68.82.

This week the news for oil markets were not so encouraging for the future. First of all, the IEA reported that OPEC production decreased in March by 165000 barrels per day and tightened supply may cause further declines in inventories. Moreover, in two weeks time gasoline stocks decreased almost 10 million barrels in the US. On the other hand, distillate stocks and crude oil stocks increased slightly in the US. However, it should be recalled that we are moving towards the driving season and the weather conditions are not as determinative as before. This means gasoline stocks are more important than distillate stocks as an indicator for this time of the year.

US Energy Secretary Samuel Bodman said Friday that US gasoline supplies will meet demand this summer, but he warned of price run-ups due to refinery constraints. Moreover, he added that with refineries down due to annual maintenance and for a switchover to summer gasoline blends, gasoline on the market could be limited and prices could rise to levels seen last summer. (Platts)

Oil Prices

Source: Financial Times

As can be seen from the above graph, even though the Brent oil and WTI oil were strongly correlated with each other in the past, the two has begun to diverge from each other with the beginning of April. There is almost a difference of $4.5 between them. The reason of this was indicated by the Financial Times that the storage tanks are full in the Cushing with WTI oil. Also, there are some refinery outages in the region and for this reason WTI is piled up this much. This kind of an abundant supply prevents WTI price to increase when compared to Brent oil. The other important thing according to Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York, is Iranian and Nigerian oil grades are priced according to a Brent based formula, so political tensions and conflicts in these regions cause bigger increases in prices. (Bloomberg)

The tension in the Middle East is still so high and this kind of a situation always represents a potential threat for the oil markets. As seen in the incident of capture of Britons even a gossip can cause big volatilities in the markets. However, Iran’s nuclear crisis and the situation in Iraq are still so delicate issues in the political agenda. Especially, blasts in the “Green Zone” in Baghdad shows that even the places with highest security measures cannot be controlled. Moreover, Ahmedinejad’s latest statements about Iran’s nuclear energy capabilities show that the Iranian nuclear crisis will preserve its importance on the agenda.

For the next week, according to a Bloomberg’s survey 15 out of 31 analysts expect oil prices to rise, whereas only 5 of them expect a fall in prices. Moreover, the inventory level of gasoline stocks in the US that would be announced this week might be an important factor on the markets.

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This commentary is from USAK’s Energy Review Newsletter
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