Crude closed yesterday (Monday) at highest point since October 2008 — coincidence?
Yesterday’s strength in crude oil price was not based on concerns of a shortage. Russia announced on Sunday that it produced 123.86 million tons of crude and gas condensate in Q1 2010, 3.2% above Q1 2009 and its highest output level since the breakup of the Soviet Union.
OPEC is not willing to cut back its production in response. Iran, Venezuela and Angola have been openly flouting their OPEC quotas in recent months. According to Bloomberg, Iran’s current output stands at 3.82 MMbbls/d, 15% above OPEC’s 3.33 MMbbls/d quota, while Angola pumped 1.75 MMbbls/d, 10% above its 1.656 MMbbls/d alleged quota.
Keep in mind these numbers are reported by the countries or estimated by outside observers, so underestimation is likely the word of the day.
Further East, Syria served notice on Friday that it will increase year-on-year crude production for the first time in 14 years. The country is pumping 0.38 MMbbls/d and expects this to increase above 0.40 MMbbls/d in the coming months as joint ventures with Russian and American companies come on-line.
- Light, Sweet Crude Futures Now
- Brent Crude Futures Now
Even traditionally conservative Saudi Arabia and the UAE have added production capacity. Put simply, OPEC refuses to cut its quotas under the assumption that global demand will pick up to absorb the spare barrels currently in the system. But when every one of the world’s largest oil producing nations is flooding the system with barrels, the market will need a very large sponge.
- Natural Gas Futures Now
This is where Friday’s jobs data may be fuelling the bulls. Total non-farm payrolls rose by 0.13% to their highest point since September ’09. The year-on-year deficit decreased to 1.76%, a stark improvement from January’s 2.96% y-o-y deficit. But, as analyzed in the March 8 issue of The Schork Report, it is the type of jobs which matter.
Manufacturing jobs increase domestic energy demand, from the coal to fuel furnaces to the diesel to fuel freight transport. In that sense, the recovery is gaining momentum. Total goods producing jobs rose 0.23% after a harsh winter led to a drop in February, while jobs in the service industry only grew 0.1%.
Jobs in the oil and gas extraction industry surged 0.8% to their highest point since February 2009. In fact, extraction jobs are 0.06% higher year-on-year and 20.4% above the 2004-08 timestep. The increasing interest in domestic natural gas extraction, evidenced by Exxon’s take-over of XTO, is probably not good news for natural gas prices in the long run, but it is good news for laid-off workers in hard-hit areas such as Western Pennsylvania.
The coal mining industry also saw a 0.25% increase in jobs. This had a knock-on effect on jobs in electricity generation from fossil fuels, which rose 0.15%.