After a $9 a barrel price drop in the last few weeks, oil futures in New York and London reversed Wednesday on the news that the southern leg of the Keystone pipeline that can transport 700,000 b/d from Cushing Okla. to the gulf coast was nearly operational. At Wednesday’s close, NY futures were up $2.06 a barrel to $104.10 and London futures were up $1.25 to $109.19. The WTI/Brent spread narrowed to $5.09. Although the opening of the Keystone pipeline to the Gulf will do little for demand it should eliminate the glut that developed at Cushing due to the US’s tight oil boom. Inventories at Cushing continued to fall last week and are now at their lowest level since February 2012.

The weekly stocks report was a surprise in that the US crude inventory jumped by 5.5 million barrels which was more that twice what analysts were expecting. Part of the jump was due to a drop in refining to 89.0 percent of capacity as we are entering a traditional refinery maintenance season, and the rest was due to a jump of 400,000 b/d in crude imports over the average of 8.0 million b/d the US has been importing recently.

It is too early to assess the consequences of the federal government shutdown that has been going on since Tuesday. Other than the obvious drop in demand for motor fuels due to less commuting and economic activity, the only concern at the minute seems to be the possibility of delays in permitting and approvals of new projects should the shutdown be prolonged. The rapid drop in crude prices since early September has sent gasoline down to the lowest it has been since January, with the AAA reporting a national average price of $3.40 a gallon on Monday.

The Iranian Parliament strongly endorsed President Rouhani’s efforts to improve relations with the West. The Parliament’s backing along with that of the Supreme Leader, Ayatollah Khamenei, suggests that a substantial part of Tehran’s establishment is behind the President’s initiative. Whether this will translate into progress on the nuclear negotiations remains to be seen but Secretary of State Kerry remains optimistic.

It is clear that economic troubles in Iran are worse than the government has admitted and continue to grow. Unlike in the Ahmadinejad era, the new government is starting to talk about the hardships the various sanctions are causing and is openly seeking to have them lifted. Tehran is preparing to implement a risky price increase for domestic fuel prices in an effort to relieve the multi-billion dollar burden the subsidies are causing. An increase scheduled for mid-2012 was cancelled due to the rampant inflation occurring at the time.

Iran is also facing a natural gas shortage in the next two years as the development of the giant South Pars field has not proceeded quickly enough. Tehran is already importing some 40 million cubic meters of natural gas a day from Turkmenistan but is still forced to burn oil to generate power.

Bombs continue to go off in Iraq with the UN reporting that nearly 1,000 Iraqis were killed in terrorist attacks in September. On Monday more than 50 were killed in a series of 13 coordinated car bombings. The day was capped by an explosion in the mosque inside the Daura refinery compound – a highly secured area.

Inspectors from the Hague-based Organization for the Prohibition of Chemical Weapons, acting under UN orders, have arrived in Syria to start overseeing the destruction of Assad’s chemical weapons and his capacity to produce them.

US-Venezuelan relations took a turn for the worse this week when Caracas tossed out three US diplomats accusing them of plotting to sabotage the country’s electrical grid and its economy. Venezuela’s economic situation is becoming so bad that President Maduro clearly is looking for scapegoats to deflect the blame for his mismanagement.