A surprise increase in U.S. oil supply as reported by the American Petroleum Institute as well as a report on increased shale oil production from the International Energy Agency has the oil market acting loopy. The IEA predicted that oil supply would outstrip demand next year, with output increases from U.S. shale producers.
According to the U.S. Energy Information Administration (EIA), U.S. oil output is likely to rise for the seventh straight month to a record 5.48 million barrels per day in July. This would take another bite out of the OPEC’s market share, with the cartel having set a self-imposed production cap.
In a world full of geo-political risk, can we take some comfort that at least one dangerous hotspot may cool down? Former basketball star Dennis Rodman is on his way to North Korea to open a dialogue with his buddy North Korean leader Kim Jong-Un. Maybe Dennis can explain to him that nuclear war may not be in his best interest. Crude oil traders can now rest easy. We’re all so relieved.
The euro/U.S. dollar currency pair lost 0.749% in the last five days. The single currency is trading at 1.1193 after the ECB met expectations by keeping the interest rate and quantitative easing program unchanged. The central bank did remove the reference to rate cuts, and President Draghi praised the momentum of the economy, while at the same time warning of weak inflation.
While traders continue to stay focused on the “glut,” the futures markets are starting to signal a tighter market in the second half. The back end of the futures market is encouraging oil to be bought today and saved in storage for delivery down the road as the market must expect a dramatic tightening of supply. The speed to some of the back months is as high as $1.50 a barrel.
Why did the API report that crude supply fell almost 5.0 million barrels and the EIA reported an increase? Part of the reason is a drop in refinery runs and the reclassification of some supply released again from the Strategic Petroleum Reserve.