The fighting in Gaza made for volatile oil markets this week as prices climbed almost $5 a barrel in trading on Friday and Monday as the fighting intensified; fell sharply on Tuesday as it seemed a cease fire was imminent; and rebounded on Wednesday as the ceasefire went into effect with Brent closing up $1.03 for the day at $110.86 and NY closing at $87.63. The ceasefire allowed both sides to declare victory, but given the complexity and volatility of the situation, it is impossible to predict how long it will last.
The weekly stocks report showed US crude inventories decreasing for the first time in three weeks – down 1.47 million barrels. Analysts had been predicting a1 million barrel increase. US oil production increased by another 1000 b/d to 8.74 million – the most since May 1994 -- and domestic gasoline consumption seems to be increasing slightly.
Natural gas futures continued the climb which began two weeks ago on forecasts of a colder winter ahead. Prices closed on Wednesday at $3.90 per million BTUs, up nearly 40 cents in the last two weeks, and very close to the high for the year.
Perhaps the major development so far this week is the increasing optimism for an US economic recovery. Jobless claims are down a bit, confidence is up, and manufacturing is doing slightly better.
In Syria government forces are losing ground as rebels continue to overrun key towns and military bases. The UK is now recognizing the newly created, Western-backed opposition coalition as a legitimate government in exile. With winter coming and the Syrian economy in terrible condition, it is difficult to see the current situation continuing for much longer. Some are suggesting that a military coup is a possibility.
The six world powers that have been in negotiations with Tehran over its nuclear weapons program met on Wednesday to discuss positions and to seek new talks as fast as possible. The recent IAEA report that Iranians are in a position to step up production of enriched uranium is adding urgency to the situation.
While attention was focused on the Middle East, new problems were arising in the EU. On Monday Moody’s stripped France of its Triple-A credit rating, citing an uncertain fiscal outlook and a deteriorating economy. The Greek bailout situation took a turn for the worse when, after 12 hours of debate, the Eurozone’s finance ministers and the IMF were once again unable to reach agreement on the terms of the bailout. The problem remains essentially how to keep Athens afloat without relying too heavily on taxpayers in the rest of Europe. Greece’s politicians are outraged at the turn of events as they spent much political capital and weathered the wrath of their citizens to pass the draconian austerity legislation demanded by the other Eurozone members.