Oil prices rose by nearly 8 percent on Monday, touching $44 a barrel, after Israel launched airstrikes on Hamas facilities in the Gaza strip and made preparations for a land offensive. Anger in the Arab world was widespread and religious organizations in Iran began to recruit volunteers to fight against Israel.  OPEC announced that its basket of crudes fell $5.36 the previous week to $34.92 a barrel. By Tuesday, however, Gaza was forgotten and crude resumed falling on fears that the global recession would cut demand.

Wednesday was yet another story with prices rebounding 14 percent to close at $44.60 after the US stocks report showed US refinery utilization had fallen to 82.5 percent, the lowest in 18 years outside of hurricane interruptions. Although inventories continue to rise they were below analysts’ expectations. Gasoline imports remain healthy which is why inventories continue to build despite lower refining.

Evidence continues to accumulate that OPEC is making progress on cutting production to levels announced after the Oran meeting. Tanker tracker Petrologistics reports that OPEC lowered production by 400,000 b/d during December. Saudi Arabia appears to have cut production by 300,000 b/d during the month and is now pumping 8.2 million b/d vs. the 9.7 million b/d produced in August. Kuwait and the UAE are making cuts, and Angola plans to ship 1.6 million b/d in February, down from the 1.83 million that had been scheduled before the cuts. Even Venezuela has notified the Indian oil company that it plans to cut production at the joint project they operate in Venezuela. This is the first sign that Venezuela is preparing to adhere to the production cut.

Low oil prices are leading to changes in Iran and Russia. Tehran is on the verge of eliminating state subsidies for energy which retails way below world prices. Moscow has made significant cuts in export duties as Russian oil companies were losing a significant amount on every barrel exported. The duty on crude exports will fall from $192 per ton to $119.