Net Impact of Competing Factors is Steady Oil Price

Euro zone debt, tension with Iran affecting markets

WASHINGTON (Jan. 30, 2012) — The price of West Texas Intermediate (WTI) crude oil declined slightly today, falling 78 cents per barrel to settle at $98.78 at the close of formal trading on the NYMEX. This continued a recent trend of low price volatility as competing market factors have largely offset each other. While traders remain focused on euro zone debt concerns and dismal demand numbers, placing downward pressure on oil prices, as well as geopolitical tension with Iran and signs of economic recovery in the U.S., placing upward pressure on prices, the net impact has been the price of crude holding steady in recent weeks. 

Much as WTI crude oil last week continued the recent trend of prices at or near $100 per barrel, so too continued a focus on the same stories that have held traders’ attention to begin 2012: European economic woes, tension with Iran, and historically low domestic demand. Reported concern with Portuguese and Spanish debt drew some headlines early last week but ultimately weren’t assessed as anything more than a continuation of the economic pessimism that has weighed on the European and global economies. This economic uncertainty would be expected to exert downward pressure on prices as a weaker economy demands less crude oil. Geopolitical tensions with Iran and the associated specter of a potential supply disruption does bring expected upward pressure on crude prices, however, action surrounding these tensions continues to be evaluated as “saber rattling.” This assessment was supported by news last Thursday that Iranian President Mahmoud Ahmadinejad had indicated Tehran was ready to return to the negotiating table to discuss that country’s nuclear development program. While concerns of global supply disruption have kept some upward pressure on crude oil prices, supply reports continue to highlight anemic demand and adequate stocks on hand. Last Wednesday’s weekly Department of Energy (DOE) report showed an increase of 3.6 million barrels for crude stocks and gasoline demand at 8.098 million barrels per day — an increase from the previous week’s demand number but a widening year-over-year decrease. 

WTI prices last week spent a full week with settlement prices below $100 per barrel for the first time since before Christmas and marked the least volatile trading week since the end of April 2011 — the same week that crude oil prices reached the peak for 2011 at $113.93 per barrel.

While crude oil prices have held steady, gasoline prices have moved higher. This increase is largely the product of expected refinery shutdowns — both in the U.S. and Europe — as refiners cut production in the face of limited demand for their product.  Last week’s DOE report showed refinery utilization decreasing to 82.2 percent from 83.7 percent the week prior. The current national retail average price for a gallon of self-serve regular gasoline is $3.43.  Today’s price is five cents more expensive than last week, 15 cents more expensive than one month ago, and 33 cents more expensive than one year ago. 

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