Neither the intensifying “2nd Cold War” between Russia and the West nor the worsening chaos across the Middle East seems to be enough to encourage oil traders to build a risk premium into oil prices. This week New York oil futures traded around $97-$98 a barrel and London around $105. The weekly stocks report showed US refining dropping by 1.1 percent to 92.4 percent of capacity — partially due to a fire which closed a refinery in Kansas.  New York oil dropped to a 6 month low to close at $96.92 on Wednesday and London closed at $104.59.
US crude inventories were down by 1.8 million barrels last week, but gasoline stocks were down by 4.4 million barrels and distillates down by 1.8 million. Total commercial inventories decreased by 8.4 million barrels. The refinery in Kansas that was shut down normally draws its 115,000 b/d of crude from the Cushing, Okla. storage depot. The loss of this customer led to a 83,000 barrel increase in Cushing’s inventory last week. The refinery is expected to be out of service for a month.
New York natural gas futures climbed this week on the outlook for warmer weather in the last two weeks of August. Gas prices are up about 15 cents per million BTUs so far this week and could be back above $4 shortly if demand picks up.
The Ukrainian crisis tops the list of risks to oil supplies this week with government forces now on the verge of capturing the last major rebel-held city. Russian forces, however, are massing on the border for a possible intervention on behalf of the insurgents.  NATO and EU capitols have been sounding alarm bells all week.
So far the exchange of sanctions between Moscow and the West has stayed away from short-term oil and gas sales as both sides are vulnerable. Although Western help in financing and developing new oil reserves is on the sanctions list, nothing has happened to drive oil prices higher as yet.  Should Russia invade Ukraine, however, this could change and we could see another round of sanctions which might impact Russian oil and gas sales.
The new Libyan Parliament met this week in Tobruk which is 900 miles east of Tripoli and immune to the heavy fighting still taking place there.  Whether the new parliament has any meaningful role is yet to be seen. The Libyan government says it has resolved its oil crisis and that all ports are in operation.  However, eight large fuel storage tanks have gone up in flames at Tripoli’s airport, some of which supply fuel to the capitol itself. There seem to be 1.6 million Egyptians doing much of the heavy work in Libya and those that can are trying to get to Tunisia.  Given that many if not most foreign technicians are bailing out of the country to avoid the fighting, it is unlikely we will see much oil exported for a while.
In Iraq, the IS continues to storm across the northern part of the country, driving some 200,000 non-Sunnis from their homes and clashing with Kurdistan’s Peshmerga. The IS, which is now better armed with weapons captured from the Iraqi Army, has been overwhelming the Peshmerga in these clashes; however, a counter offensive is expected.
A major humanitarian crisis is developing as tens of thousands of Iraqis have been driven from their homes. Most are making for Kurdistan which is being overwhelmed. The IS seems close to taking over the Mosel Dam, which currently is controlled by Kurdish forces. The dam is in poor shape and without constant maintenance by specialists is likely to flood much of the countryside downstream including Mosel and Baghdad.
In the meantime there has been no political agreement in Baghdad over who will be the next prime minister, and exports of Iraqi oil continue to increase.