After falling steadily since the middle of September, New York oil futures rebounded this week by some $5 a barrel to close at $97.14 on Wednesday. The surge began on Tuesday with the news that the southern segment of the Keystone pipeline will open on January 4th with the capacity to move 700,000 b/d from Cushing, Okla. to Port Arthur on the Gulf Coast. The new pipeline should be enough to keep gluts from developing at Cushing where stocks fell by only 18,000 barrels last week despite the big increase in refining.
This news was followed on Wednesday by the EIA stocks report which showed US refining had jumped 3 percent last week to 92.4 percent of capacity taking US crude stocks down by nearly 5.6 million barrels. Analysts had been expecting that US crude stocks would fall by 500,000 b/d or less so the size of the drop, which was the first in 11 weeks, came as a surprise to the markets. The WTI/Brent spread which had been as high as $19 last week fell to a close of $14.68 a barrel.
London oil futures, after climbing $3 a barrel on Monday and Tuesday, fell 74 cents to a close of $111.84 on Wednesday after OPEC decided to keep its official output level unchanged at 30 million b/d. There was some discord during the meeting when Iran and Iraq announced that they planned to increase oil output to 4 million b/d next week. Tehran is anticipating that the sanctions will be lifted by summer, and Baghdad is expecting that the renovations to port facilities and an agreement with Erbil over the export of Kurdish oil to Turkey will result in a major increase in exports. Some OPEC members are worried that another 2 million b/d coming onto the oil markets in 2014 will drive down prices.
US natural gas prices briefly topped $4 per million BTUs this week as much colder weather is forecast for this week.
It looks as if Baghdad and the Kurds have come to an agreement that will start the oil flowing from Kurdish territory to Turkey through the northern export pipeline (as long as it remains open) and the new pipeline into eastern Turkey. The agreement supposedly will allow Baghdad to control the amount of the oil the Kurds export and to manage the money received for the oil. Previous agreements have broken down amidst recriminations of cheating and not giving the Kurds their proper share.
Anarchy continues across much of the Middle East with yet more bombs going off in Iraq; the relief situation in Syria growing worse by the day; and the assassination of a senior Hezbollah commander in Lebanon. In a new twist, Hezbollah is blaming the attack on the Iranian embassy in Beirut last week on the Saudis of all people.
In Syria, the insurgents seem to have gotten around to targeting natural gas pipes supplying fuel to major power plants. Gasoline is also in short supply in Damascus due to an attack on the major refinery at Homs. If the insurgents can keep the lights out and restrict the gasoline making its way into Damascus, the Assad regime may be facing more trouble than is generally thought.