Oil prices closed Wednesday near the bottom of the trading range that has been in place since the beginning of September. New York futures ended at $44. 48 and Brent at $47.75. Although the weekly stocks report showed a 1.9-million-barrel dip in the US crude inventory, this was largely offset by an unexpected climb of 1.4 million barrels in gasoline stocks and the expectation that more US refineries will be closing down for maintenance in October.  Yet more bad economic news from China contributed to Wednesday’s price decline of 2.7 percent in London and 4.1 percent in New York.
The EIA also had US domestic oil production up by 19,000 b/d last week to 9.14 million and output in the lower 48 states flat at 8.65 million b/d. Analysts are not sure what these numbers mean. Some say they could indicate that the decline in production is slowing from what the EIA has been forecasting. However, some note that if there is any indication of production actually increasing, we would quickly see oil prices down in the $30s.
In China the purchasing manager’s index fell to 47, the lowest in 78 months. A number below 50 suggests that the economy is contracting. This news led to a decline in China’s equity markets which have been doing better lately and to still more fears that China’s economy may be headed for a hard landing. The news also fed concerns that the US Federal Reserve will delay its long-awaited interest rate increase still longer.
The financial press continues to highlight the woes of the global oil industry as it tries to contend with falling oil prices.  Waterford International, one of the world’s largest drilling contractors, failed in an attempt to borrow $1 billion from Wall Street because of its sagging stock price. ConocoPhillips is trying to sell off its Canadian assets. Total SA sold a 10 percent share in a $15 billion oil sands mine for $234 million and Wood Mackenzie says the world’s oil companies have now cut $220 billion in planned investments.  Wood Mackenzie also says that if oil prices stay below $50 a barrel, some $1.5 trillion worth of investments will be curtailed over the next few years. If these predictions come to pass it is difficult to foresee how world oil production can stay anywhere near current levels.
In the Middle East, the Libyan peace talks look like they are going to collapse. The Russian military buildup in Syria continues with more tanks, attack helicopters and aircraft arriving daily.  While Moscow says it is in Syria to fight ISIL, the insurgents threatening Assad’s power base in northwest Syria are made up of groups backed by Turkey, the US and the Gulf Arabs, with most of ISIL’s forces hunkered down in the northeast to avoid the continuing US arterial bombardment.
Another cholera epidemic has broken out in Iraq where the sanitation and water systems continue to deteriorate. Temperatures in Iraq reached 122o F. in July and August which did not help the situation.  The flow of middle class Iraqis to Europe is increasing.  It becomes increasingly difficult to see how Iraq can continue to increase or even maintain its oil production given the numerous problems it is facing.