Wednesday was a down day with oil, natural gas, gasoline futures, and the equity markets all dropping sharply. NY oil futures were down 2.8 percent, closing at $94.45, as the EIA reported that US crude stocks rose by an unexpected 2.7 million barrels last week to the highest level in 22 years. London’s Brent, however, fell 3.2 percent, narrowing the London-WTI spread to $12.66, the narrowest since last July.

US refineries operated at 86.3 percent of capacity last week as more units reopened after spring maintenance. Stockpiles at the Cushing storage hub fell by 278,000 barrels before a leak in Arkansas forced the closure of Exxon’s Pegasus pipeline and changed the Midwest energy picture for an indeterminate period. Arkansas is considering asking Exxon to move some 13 miles of its 60-year old pipeline that rusted through last week out of the watershed that furnishes the water supply for 400,000 of its citizens.

Gasoline futures fell 4.2 percent or nearly 13 cents a gallon on Wednesday as traders expected that the increased refining activity would lead to larger gasoline stocks as US demand for gasoline remains weak despite the average retail price having fallen 11 cents a gallon in the last month. Gasoline futures are now nearly 40 cents a gallon lower than they were in mid-February.

BusinessWeek has concluded that increasing exports of gasoline and diesel where refiners can get better prices is the reason gasoline is staying high despite the jump in domestic crude production. There seems to be a new wave of enthusiasm in the US oil industry to lift the ban on exporting crude. The argument seems to be that we have too much light sweet crude that Europe needs and not enough heavy sour crude that our refineries are set up to use.

An EPA proposal to cut the sulfur in gasoline from 30 ppm to 10 ppm has drawn the expected response from the API which holds that the move would not only increase the cost of gasoline but would also plug up catalytic converters and increase greenhouse gas emissions.

New data from the EIA shows that as natural gas prices have been slowly rising in recent months more electric power generators have been returning to coal as the more economical source of energy – reversing a trend toward natural gas. The government also reports that most of the US west of the Mississippi is suffering from some sort of drought condition.

As for the Mideast, terrorist bombs continue to go off in Iraq. The rebels seem to making some progress in driving government forces out of the small cities in southern Syria. The aftermath of the uprising is looking more like a mess that could engulf much of the region all the time. The Iranians are cooling their nuclear rhetoric during the run-up to their elections. It looks like the Turks are angling to get control of the oil coming from Iraqi Kurdistan by controlling the pipelines, the marketing, and having a stake in the production. This is not going to make Baghdad happy.

Egypt is still trying to get the IMF loan that it has been working on for two years. The negotiators are in Cairo this week.

China’s economy is starting to look a little better, but its air and water is looking worse all the time. A new study says that air pollution is contributing to the premature death of 1.2 million Chinese a year. OPEC says China will be the world’s top crude importer by 2014, surpassing 6 million b/d by the end of this year.

Unemployment in the Eurozone hit a record 12 percent in February. Things looked even worse in March.