For nearly three weeks now New York oil futures have cycled between $48 and $54 barrel, while London futures have climbed steadily reaching nearly $63 a barrel on Tuesday before falling to close at $60 on Wednesday.  US traders have been more attuned to the increasing size of domestic oil stockpiles, while London traders have been watching the situation in Libya deteriorate into something akin to a civil war.  The underlying issue of how quickly the rapid declines in the US drilling rig counts will translate into significantly lower oil production continues to roil the markets. Most observers believe that US crude production will be much lower, perhaps by as much as 600,000 b/d later this year, but that is still five or six months away. For the immediate future, US refinery demand will be weak during the winter maintenance period and stockpiles will grow. Some are predicting that the US will run out of oil storage capacity in the next few months, driving prices down to $10 or $20 a barrel.
 
The upsurge in violence in Libya and the continued heavy fighting in the Ukraine have been the top geopolitical stories this week. The beheading of 21 Egyptian Christians by ISIL in Libya brought a sharp response from Cairo who started bombing ISIL targets. In the meantime, new attacks on Libyan oil facilities and a key pipeline have brought oil production to new lows and exports could come to a complete halt. Rome and Cairo are calling for UN sponsored military intervention. Rome of course is concerned about the increasing number of Africans using lawless Libya to make their way to Italy and Cairo is worried about ISIS spreading into Egypt from the west.
 
The ceasefire in the Ukraine has been generally observed this week, except at the critical railway town of Debaltseve, which fell to the rebels on Wednesday. Control of this town allows the separatists to link the two major sections of eastern Ukraine that they control. This week’s battle has been marked by very heavy artillery fire from the separatist side suggesting that Moscow is providing major support to rebels in their battle for the town. How this sits with the EU remains to be determined.  In the meantime, Russia’s economy continues downhill with economic conditions approaching those seen during the breakup of the Soviet Union in 1991.
 
In Tehran, Ayatollah Khamenei is insisting that all the sanctions be lifted immediately as part of a nuclear agreement and says he is prepared to impose an oil and gas embargo if any sanctions remain. The fixation on total removal of the sanctions suggests they have been more effective than Tehran has been willing to admit.
 
Saudi Aramco is said to be negotiating for a $10 billion loan to fund investments during this period of low oil prices. Although the Saudi government has accumulated around $800 billion in foreign reserves, its oil company may not be doing as well with oil still selling for about half of what it was bringing last June.
 
Despite forecasts of unusually cold weather across the northern US for the next two weeks; natural gas futures fell to $2.76 on Wednesday. This suggests that the markets see US natural gas production as being so strong that stockpiles will not be falling much below normal in the immediate future.