The big news last week was that crude oil prices started to moderate on the news that France confirmed it was in contingency talks with Britain, Japan and the U.S. to release billion of barrels of crude oil onto the market from each country’s strategic reserves. Ironically, Germany has the third-largest strategic crude oil reserves, but apparently refuses to participate in talks to release some of their crude oil reserves after Philipp Rosler, Germany’s Economy Minister, insisted that its crude oil reserves could only be released if there was a “genuine physical shortage.”
In the meantime, Saudi Arabia’s influential oil minister, Ali Naimi, said, “The bottom line is that Saudi Arabia would like to see a lower price. It would like to see a fair and reasonable price that will not hurt the global economic recovery.”
Over in Britain, long lines for gasoline and diesel have suddenly appeared due to a trucker’s strike, so the British military may soon be driving fuel trucks to help alleviate the growing fuel shortage. On Wednesday, the Energy Information Administration reported that the U.S. inventory of crude oil rose by 7.1 million barrels in the latest week and that that crude oil stockpiles are now at a seven-month high.
The larger-than-expected increase, plus the rising speculation that there may be a coordinated released from the Strategic Petroleum Reserve should put some downward pressure on crude oil prices. However, any spot shortages, as the Chicago-area (from the switch from winter to summer fuel blends) and Britain are now experiencing, can cause the prices at the pump to remain extraordinarily high.
The other big news on the energy front is that Iran’s oil exports continue to decline as potential buyers preparing for tough new sanctions seek alternative crude oil suppliers from Saudi Arabia and other producers. Already, Iran’s crude oil exports have declined by about 14% or 300,000 barrels per day, so the country is now only exporting 1.9 million barrels per days. Within three months, a tough new crude oil embargo from the European Union will take effect, so the E.U. has been seeking alternative crude oil suppliers.
In the meantime, the U.S. has imposed sanctions designed to cut off Iran’s central bank, which is the clearinghouse for all of Iran’s crude oil sales. Iran’s crude oil exports to both China and India have risen in recent months, so it appears that the impending sanctions have not yet had a full effect, and it appears that Iran is fighting back by boosting its exports to other countries. As a result, it may not be apparent if these sanctions are working until the E.U. embargo commences in July,
The economic news out of the U.S. last week was largely positive:
Consumer confidence held at 70.2. This is near the highest level in the past 12 months and fell in line with economists’ expectations. A high point here was that 12% of consumers expect to buy a vehicle in the next six months, up from 10.3% the previous month. In fact, recently released car sales statistics indicate a fairly robust rise in sales continues.
This big surge in vehicle sales may explain why the Commerce Department announced that February’s durable goods orders rose by a healthy 2.2%. Excluding a 6% surge in orders for commercial aircraft that distorted the durable goods figure, excluding transportation, durable goods orders still rose a very healthy 1.6% in February, so there was strength across the board. Overall, durable goods orders have risen 13.5% in the past 12 months, which bodes well for continued strong GDP growth.
Finally, the Labor Department reported that new unemployment claims continued to fall by 5,000 in the latest week to 359,000, so the four-week moving average now stands at 365,000, which is a four-year low.
In fact, the only real negative news last week was that the folks at S&P/Case-Shiller reported that its 20-city home price index declined 0.8% in January for a fifth consecutive month. Home prices are now at the lowest level since the end of 2002, so home prices are now at a nine-year low. However, the fact that year-over-year comparisons are comparing a “distressed” quarter to a “weak” quarter is raising hope that the housing drag on the U.S. economy may finally have bottomed.