New York oil prices rose sharply on Monday due to the usual hopes for an economic recovery and threats to Middle Eastern oil exports. As the situation in Iraq deteriorated this week, London oil prices moved steadily upwards to close on Wednesday at $109.95.
The weekly stocks report showed an unexpectedly large drop of 2.6 million barrels in US crude inventories. The API had projected a 1.5 million increase. Inventories at Cushing, Okla. fell by 200,000 barrels and are now just about at their minimum operating level. The EIA also increased US oil production last week by 77,000 b/d to 8.46 million. The Administration released a new forecast that US domestic production will average 8.4 million b/d this year and 9.3 million in 2015.
The OPEC meeting in Vienna agreed to keep the official quota, which has been meaningless for years, at 30 million b/d which many believe is inadequate to cover global demand in the second half of the year. The move came despite the near cessation of production in Libya and a burgeoning civil war in Iraq which seems likely to reduce oil exports in the near future.
US natural gas futures have fallen some 25 cents per million this week to close at $4.50.   Traders are expecting that the EIA will report that 111 billion cubic feet of natural gas was injected into storage last week which is enough to keep the stock rebuilding process on track for the time being.  The five year average for last week was 88 billion.
The prospects for Middle Eastern oil exports are going down rapidly. As the onshore production is close to zero in Libya, the oil ministry has ordered that production from offshore platforms be shipped to the Zawiya refinery in order to insure that Tripoli continues to have motor fuel and other oil products. This means that exports are very close to zero.  The UN and Italy have welcomed the Libyan Supreme Court’s decision to reject the appointment of a new prime minister so the country is back to only one. The fight between the rogue general with the US passport and the Islamic militants continues with air strikes taking place against militia bases in Benghazi. Don’t expect much oil out of Libya in the near future.
The situation in Iraq has taken a decided turn for the worse with the Islamic militants occupying Mosul with little resistance from security forces and then driving south to take Tikrit and then Duluyah which is only 60 miles from Baghdad. Along the way they captured the town of Baiji which is the location of Iraq’s largest oil refinery which supplies fuel for most of the country.  The refinery has a security force of some 250, but as yet there is no word as to whether they have fled as did the army and police in other cities. The insurgents have been able to free hundreds of their comrades from prisons they have captured
During the offensive, the Islamists have captured large stocks of US supplied military equipment and have doubtless picked up defectors from among the Sunni members of the government’s security forces. Although this offensive has been carried out by forces numbering in the hundreds, there is no sign as yet that Baghdad can muster enough force to drive them out of the cities they have captured or even prevent them from driving on Baghdad.  Without the oil products from the Baiji refinery, the government in Baghdad would be in a very bad situation losing its motor fuels, electricity and water supplies. 
The evacuation of some foreigners from Iraq seems to be underway. If this spreads to the southern oil fields, Iraqi oil exports could start falling shortly.