Oil prices, which have been falling steadily since mid-June, rebounded Wednesday on speculation that the markets were oversold. New York futures closed at $97.59 and London futures at $104.28. The weekly stocks report showed refinery utilization down 0.8 percent leading to a climb in crude inventories of 1.4 million barrels. Crude imports were about 200,000 b/d lower last week than in recent weeks and total commercial inventories were up by 1.5 million. US crude production continued to climb last week and coupled with weaker demand was enough to offset problems in the Middle East. Distillate fuel stocks fell more than expected prompting speculation that people were filling home heating tanks in August this year with memories of price spikes last winter. US retail gasoline prices are now down to an average of $3.47 a gallon, the lowest since early March.
Natural gas prices dropped 14 cents to close at $3.81 per million BTU’s after weather forecasters said that a bout of cold weather coming from Canada next week will limit the need for air conditioning.
The IEA has lowered its forecast for demand growth in 2014 to 1 million b/d on weaker economic growth. The global economy is expected to rebound next year which will result in an increase in demand of 1.3 million b/d. The Agency says that OPEC produced an additional 300,000 b/d in July as increases in Saudi and Libyan production offset declines in Iraqi, Iranian, and Nigerian production.
The turmoil in Iraq continues as the parliament chose a new prime minister, but Nouri al-Maliki refuses to leave office. The US and most other countries, including Iran, no longer support al-Maliki. The fighting in the north continues with Kurdistan’s forces attempting to drive back the IS insurgents from the territory they seized last week. More US military advisors have been sent to Kurdistan and the US and France are now supplying arms and other military equipment directly to the Kurds, by-passing Baghdad. The US continue to fly airstrikes against the IS insurgents opposing the Kurd’s Peshmerga. Some US and British special forces are already atop Mt. Sinjar planning for an evacuation of the 20,000-30,000 Yazidis trapped there. The White House is weighing whether to open a land route to evacuate the Yazidis.
Libya reported that a loaded tanker left the export terminal at Ras Lanuf this week for the first time since it was closed by the rebels last year. Although the occasional tanker makes it out of Libya, crude buyers are reluctant to do business with the Libyans because of the uncertainty that oil shipments would actually depart on schedule to meet refiners’ needs.
Fighting continues in Ukraine with government forces apparently making headway against the Moscow-backed insurgents. The large convoy of “humanitarian” supplies is still making its way toward the besieged Ukrainian cities held by the insurgents. Kyiv is insisting that the supplies be turned over to the Red Cross for distribution as there are still fears the convoy is a merely a cover for increased Russian military assistance.
The long-term significance of Moscow’s Ukrainian gambit is not yet known. Moscow’s fears of a pro-EU Ukraine likely will lead to considerable damage to Russia’s economy and possibly result in major changes in global oil and gas flows as the EU seeks to reduce its dependence on Moscow. Most observers believe that in the long-run Russia will be the loser.
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.