After a down day on Monday, US oil futures rebounded solidly Wednesday, in response to a larger than expected 4.2-million-barrel decline in the US crude oil stockpile. New York Prices rose 81 cents to close at $48.79. The London markets, which are not as impressed by US stockpile data, rose only 8 cents to close at $53.38 a barrel. Prices are still about more than $10 a barrel below where they were in mid-June and most observers are still talking about overproduction and further price declines. Before the Tuesday price jump NY oil traded on Tuesday at $46.68, the lowest since March and London touched a recent low of $52.28
The weekly stocks report showed large increases in distillates and propane so that total commercial petroleum inventories were largely unchanged last week. Also of note in the stocks report was a 151,000 b/d decline in the EIA’s estimate in weekly oil production in the lower 48 to 8.95 million b/d. This was the largest one-week drop since October 2013. Many are skeptical of these EIA weekly numbers, preferring to wait until the states come up with more solidly based numbers about 6 weeks later or when the EIA gets its new production survey system working. Also in the wings is the widely anticipated Federal Reserve increase in interest rates which may come in September. Such an increase is generally expected to drive up the dollar and lower oil prices.
Much of the news that will eventually move oil prices came on the international front this week. The US-Turkish agreement to step up air strikes into Syria from bases in Turkey and establish a no-fly sanctuary in northern Syria should increase pressure on ISIL. Many people think the days of the Assad government which is only surviving with support from Moscow, Tehran, and Hezbollah are numbered. Opposition forces are making progress on a number of fronts.
The Turks have taken out after the Kurds again by intensive bombing of Kurdish military units in Turkey and Iraq. The Kurds have retaliated by blowing up the gas pipeline into Turkey from Iran and the line that was exporting oil from northern Iraq to the export terminal at Ceyhan, Turkey. The revival of open hostilities between Ankara and the Kurds almost certainly has many important ramifications for the future of the region.
Russia’s economy has taken another a big hit from falling oil prices. The ruble was back above 60 to the dollar for a while on Tuesday before the government stepped in to stop the slide. If oil prices continue to fall, Moscow will be in a lot of economic trouble before the year is out.
China’s stock markets resumed falling on Monday, however, yet another massive dose of government intervention checked the slide on Tuesday and Wednesday. No one knows just what to make of a stock market that is controlled by the government. Beijing would like a market that only goes up, but this is a rather tall order. Some are talking about the Chinese stock market crash as the harbinger of the next great depression – which certainly is not good for oil demand or prices.
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