After three days of increases which took oil prices up by over $4 a barrel, prices slipped on Wednesday after the weekly stocks report showed US crude inventories hitting a new all-time high. As has become the norm of late the price jumps were spurred by expectations that US oil production will drop even more due to yet another drop in the drilling rig count. The API, which has a rather spotty track record, reported on Tuesday that there had been a 1.3-million-barrel drawdown rather than the 3.1-million-barrel build the EIA reported on Wednesday.  The EIA also reported a 2-million-barrel increase in US gasoline stockpiles which was four times more than analysts had been expecting. Given that US refining was down by 2.8 million barrels last week, the build in gasoline suggests that consumer demand for gasoline may not be as strong in the post-labor day period.
 
The London markets were also spooked by the intensity of Russia’s intervention into the Syrian civil war on the side of the Assad government. Brent closed Wednesday at $51.33 a barrel and New York at $47.81.
 
The rally, which took prices above their recent trading range, was also supported by an EIA report on Tuesday projecting that global demand for oil will increase in 2016 at the fastest rate in six years. The report also estimates that US crude production declined by 120,000 b/d in September and will continue to decrease until the middle of next year. This combined with the continuing increase in demand is supposed to lead to higher prices and a rebound in production in the second half of 2016.  There is much discussion of the toll that low oil prices are taking on US shale oil producers with talk of many more being forced from the business in coming months.
 
In the rest of the world, economies are not doing so well. German industrial output fell last month suggesting that the 3rd quarter will not be a good one. The IMF is warning that the world economy will grow at its slowest pace this year since the 2008 financial crisis. Whether forecasts of record increases in the demand for oil prices comes to pass remains to be seen.
 
The Middle East continues to spiral down. The Russians are now fully engaged on the side of the Assad government which is launching an offensive to drive the rebels out of territory they have recently taken. There even appears to be a limited number of Russian troops directly involved in supporting the new offensive. Fears are rising over the US and Russia bombing in Syria at the same time and the possibility of inadvertent conflict.  To make matters worse Iraq is said to be asking Moscow to start bombing ISIL-held towns in Iraq despite the attacks that the US and numerous allies have been conducting. The only reason to ask for Russian assistance is the hope that Moscow will be less concerned about causing civilian casualties among Sunni civilians in the ISIL held areas of Iraq.
 
Moscow has clearly entered into the Sunni/Shiite conflict in a major way that will likely prolong the conflict in the region for an indefinite period.  There are no apparent threats to oil exports as yet, but given the animosities that are developing, it can only be a matter of time before this spreads into the oilfields.