Crude oil isn't taking a holiday

What air defense zone?

The United States sent a strong message to China regarding their newly declared air defense zone over some disputed Japanese Islands in the East China Sea. The United States flew two unarmed American B-52 bombers through disputed area basically saying to China go ahead make my day. The US immediately challenged China's claim to the airspace as well as criticizing them for raising the tensions in the region.The Brent and WTI oil contracts came off the lows after the report as the area involves some critical shipping lanes and involves the three largest consumers of oil on the earth. Yet the move was modest as many traders are off and it is unclear if this will continue to escalate. My bet it probably will.The US will continue to challenge the Air Defense Zone and then the next move will be up to China. Bloomberg reports that the USS George Washington carrier strike group began annual exercises with the Japan Maritime Self-Defense Force on Nov. 25 "to effectively and mutually respond to the defense of Japan or to a regional crisis," according to a statement on the U.S. Navy's website.

Yet for WTI the bigger near- term issue is the rising amount of supply. Today we get the Energy Information Administration (EIA) supply report and if the American Petroleum Institute (API) report is any indication,  it could be a whopper.

The API reported that U.S. crude stocks increased by a gigantic 6.9 million barrels. This came even as refinery runs jumped back 1.7% to 89.8%. In Cushing supply increased by 651,000 barrels in a sign that the TransCanada Pipeline may start reutilizing supply as they start to move oil out of Oklahoma to the refineries in Port Arthur, Texas.  The API showed that gasoline increased as refiners perked up yet distillates fell impacted by unusually cold weather.

Yet for Brent the fortunes are quite different. Despite the Deal with Iran, the Iranian government already is disputing the Terms that the White House reported. In Syria, fights are going on with al-Qaeda rebels over an oil field. In Libya conflicts are impacting oil production and critical sweet Crude Exports.

The EIA writes that Libya's oil sector has been crippled by prolonged strikes at key loading ports since the end of July, removing more than 1 million barrels per day of crude oil from the global market. These supply disruptions have affected the Brent crude oil price, a global benchmark, as the outages reinforced a tighter market by increasing global supply disruptions and decreasing surplus crude oil production capacity. Global markets adjusted after the initial shock in August, as supplies of crude oil from other countries made up the difference. However, there are several other factors that have more recently influenced the Brent price.

The EIA says that during July and August, strikes led by the Petroleum Facilities Guard at major oil loading ports in the eastern half of Libya forced the complete or partial shut-in of oil fields linked to those ports. The unrest spread to the western half of the country at the end of August when a different group, the Zintan militia, blocked pipelines transporting crude oil from two of the largest fields in the west (El Sharara and El Feel), forcing the shutdown of those fields. The fields restarted production in mid-September, but the largest one, El Sharara, was shut down again in late October because of demonstrations by the Tuareg community. El Feel's production also was cut in November after protests by Berber activists at the Mellitah port blocked crude oil exports and storage tanks were near full. El Feel's production is expected to ramp up to normal levels because the blockade at Mellitah ended.

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