Crude oil prices this week declined after the government of Saudi Arabia announced plans to ensure market stability. Oil prices on average continued their decline toward levels not seen since the end of August. Trouble in the eurozone, coupled with a stronger U.S. dollar and stronger inventories, may have lead to crude oil declines. Meanwhile, discrepancies in the U.S. gasoline market in part led the White House to say it was still considering a release of strategic reserves. Given sentiment on market fundamentals, however, concerns from major economies may be out of step with the physical oil market.
Saudi Arabia this week said it was ready to increase oil production if warranted by demand. That was enough to send oil prices to a two-week low, down more than 1 percent on the New York Mercantile Exchange to settle at levels not seen since Aug. 30. Meanwhile, leaders from European economies continued their debate over potential bailout packages, sending the value of the euro down about 0.7 percent when weighed against the U.S. dollar, the benchmark currency for crude. A Chicago market analyst said a Spanish bailout consideration was "making the market nervous" considering the ripple effect of the European economic crisis.
Crude oil prices by Wednesday continued their downward trend after a report from the U.S. Energy Department said inventories increased by more than 8.5 million barrels for the week ending Sept. 14. Traders had grown accustomed to oil prices above $100 per barrels and profit-taking may be putting further strain on crude oil prices. Meanwhile, refineries along the southern U.S. coast were returning to full swing after their shutdown because of Hurricane Isaac in late August. That left prices so far this week down roughly five percent, though lower prices haven't allayed lingering concerns from major world economies.
RELATED: The Real Reason Behind Oil Price Rises - An Interview with James Hamilton
In the United States, the end to the so-called summer driving season pushed retail gasoline down 1.6 percent during the week to Sept. 14, according to report from MasterCard. In terms of barrels, MasterCard said, demand slumped after the Labor Day holiday in the United States by around 600,000 barrels before recovering slightly the following week. At least one U.S. lawmaker, however, called on U.S. Attorney General Eric Holder to examine gasoline prices in the country. Another, Sen. Ed Markey, ranking member of the House Committee on Natural Resources, called for a probe into high-frequency trading, suggesting "Wall Street computers are effectively running our oil markets."
MasterCard, in its report, found the decrease in demand came against a 6-cent rise in the average price for a gallon of regular unleaded gasoline. The U.S. Energy Department's Energy Information Administration finds that average retail prices for the week of Sept. 17 was $3.83, up nearly 10 cents compared to the week leading up the Labor Day holiday.
White House spokesman Jay Carney said he welcomed the commitments from Saudi Arabia to take what he said were "all necessary steps" to make sure prices remained moderate and markets were well-supplied. The spokesman said the U.S. government shared concerns about rising oil prices with its allies, noting all options were on the table to keep markets stable.
RELATED: Why North American Gas Prices Are So High
"We retain the right to keep all options for dealing with those issues on the table, and that includes SPR," he said. "But I have no announcements of any action that may or may not be taken."
Despite assurances on market stability, Saudi Oil Minister Ali al-Naimi said last week that current prices weren't justified by supply, demand or inventories. A hedge fund manager in New York specializing in the energy markets said stimulus efforts, no matter how ambitious, would do little unless the global economy itself is strong enough to support demand. If the U.S. retail gasoline market serves as a benchmark, most consumers are keeping their money at home.
By. Daniel J. Graeber of Oilprice.com
Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,… More
Comments
" The U.S. Energy Department's Energy Information Administration finds that average retail prices for the week of Sept. 17 was $3.83, up nearly 10 cents compared to the week leading up the Labor Day holiday."
??????????