The surge in oil prices which took NY oil futures from $86 a barrel in mid-April to over $96 continued this week with June futures closing Wednesday at $96.62. The spread between NY and London futures continues to narrow with London currently trading at a premium of only $7.72– the lowest since January 2011. The dollar a barrel jump in NY futures on Wednesday came despite a rather small, 230,000 barrel, increase in US crude inventories and a 57,000 b/d increase in US crude production to 7.37 million b/d — the highest level since February 1992.

The weekly stocks report also showed a 2.6 percent increase in US refining as more plants returned from maintenance, and a 656,000 barrel drop in the inventory at the Cushing storage hub. It has been the glut at Cushing that has kept the price of US oil well below the world prices for the past two years. The Seaway pipeline which drains oil away from Cushing to Gulf Coast refineries is running about 100,000 b/d below capacity due to inadequate facilities to accept oil at a faster rate in the Houston area. While this problem should be fixed in a year or so, in the meantime oil producers are figuring out ways to bypass the Cushing bottleneck to get their oil to market.

US natural gas futures have held around $4 per million BTUs this week after dropping nearly 40 cents late last week. Mild weather across the US has left demand weak and we are now in the period between winter heating and summer cooling. The Obama administration signaled its support on Monday for larger US LNG exports in the years ahead, but some analysts are skeptical that current price levels will result in sufficient production in the next few years to support a large LNG export industry.

Retail gasoline currently is averaging around $3.54 a gallon, down about 6 cents a gallon in the last month and about 25 cents a gallon lower than at this time last year. NY gasoline futures have been holding around $2.85 a gallon this week after climbing some 15 cents a gallon since the 1st of May.

It has been relatively quiet in the Mid-East this week as the world waits to see if there will be a retaliation for the Israeli air strikes on Iranian missiles transiting Syria on the way to Hezbollah in Lebanon. In recent weeks, Lebanon’s Shiite Hezbollah has become increasingly open in its military support for the Assad regime in Syria with organized Hezbollah units as opposed to “volunteers” helping Assad’s forces in battles with the Sunni insurgents.

Many observers have noted that Hezbollah is taking a big chance in openly fighting for the Assad regime’s survival against the Sunni insurgents in Syria. Should Assad lose, Hezbollah could be completely cut off from its Iranian backers in any future confrontation with Israel.

As has become the norm in recent months, the situation in Iraq continues to deteriorate. The northern export pipeline was bombed once again, and Sunni-Shiite violence continues to increase. Fears of civil war in Iraq are growing.

Although Beijing announced a 14.7 percent jump in its exports for April, most observers are skeptical that China’s economy is recovering as rapidly as the numbers would suggest. The corresponding numbers from Beijing’s trading partners do not support claims of such a large increase in exports nor do other measures of China’s business activity. Some believe Chinese exporters are over-invoicing as a means of bringing controlled investment capital into the country.