It has been a down and up week with oil prices falling nearly $3 a barrel on Tuesday to a 16-month low for Brent and an 8-month low in New York. The cause of the collapse was concerns over weaker EU and Chinese economic data which some believe will lead to lower demand for oil. However, prices rebounded on Wednesday after what could be some sort of ceasefire in the Ukraine. At the close Wednesday, NY futures were back up to $95.54 and London was up to $103.77.
The oil markets have had trouble grasping the impact of the Ukrainian situation on prices.  As Russia and the EU are highly dependent on the westward flow of gas and oil, as a major source of revenue in the case of Russia and a major source of energy in the case of the EU, both have been careful not harm this flow as various sanctions and counter sanctions have been imposed.  The prospect of a ground war between Russia and the West even if buffered by “proxies” such as Ukraine and Russian-speaking dissidents is a very serious proposition which would traditionally have sent the markets higher.
Other than for oil sales, however, there have been serious economic consequences.  Russia’s ruble and stock market has tanked and France has just cancelled the sale of two large warships to Moscow. Future Western aid to help the development of Moscow’s oil fields is more or less on hold. This of course could eventually have economic repercussions in the EU which conducts considerable trade with Moscow.  As one analyst put it, “it is counter-intuitive” that better prospects for a settlement should send oil prices higher rather than lower. The theory this time seems to be that a settlement would help the EU’s economy, which has not been doing well lately, thereby increasing the demand for oil.
The weekly stocks report is delayed to Thursday this week due to the holiday on Monday. Natural gas prices, which got up to $4.10 per million last week, fell sharply to close at $3.85 Wednesday on the prospects for cooler weather in the US during the rest of September. Some long-range forecasters are already talking about a return of the polar vortex this winter across the northern hemisphere.  Last winter the unusual cold nearly emptied US natural gas reserves, which have not fully recovered despite a relatively mild summer and increasing natural gas production.
There have been numerous developments this week which could eventually impact global oil flows. In Venezuela President Maduro has fired the country’s long-time, pragmatic oil minister and replaced him with a cousin of former President Chavez. This does not help the prospects for the country’s myriad economic problems and sagging oil production. The growth in China’s manufacturing slowed in August suggesting the demand for oil may not be so robust this fall.  In Libya, the Islamist militias that stormed into Tripoli last week have taken control of the government ministries which are no longer seem to be functioning.  The country now has two powerless governments – one in Tripoli and one in Tobruk. Oil exports from Nigeria are forecast to slip to 1.83 million b/d in October from 1.94 million in September.
With the beheading of another US journalist and reports of hundreds or perhaps thousands of captured Iraqi and Syrian troops and civilians being slain by the IS, the US is putting together a coalition of Iraqi and other forces to destroy the organization in Iraq and eventually in Syria. With the US acting as an air force for Iraqi and Kurdish forces, even limited numbers of local forces seem to be making progress against the IS.