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.
Saudi energy minister, Khalid Al-Falih, was touring Russia over the weekend and suggested that there could be a further cut in oil production if oil inventories did not start to drop dramatically. While Al-Falih believes we will start to see inventory tightening accelerate in the coming weeks, he said that if we don’t see inventory drop, then an extension of cuts or a larger cut may be implemented and said that nothing, when it comes to getting the oil market in line, will be off the table.
It was an active night for global markets, including a terror attack in Iran, the takeover of Banco Popular in Spain--not to mention the American Petroleum Institute Report that showed a big drop in crude supply but big increases in gasoline and distillates.
While it was expected that political risk would continue driving sentiment this week with the UK Election just days away, nobody saw it coming that the main story at the beginning of the week would be the unexpected news that a Saudi-led alliance would cut all diplomatic ties with Qatar.
The Energy Information Administration failed to wow the crude oil market even after it reported the biggest crude oil drawdown of the year. The reason is a technical weakness on the charts, coupled with the promise of more Libyan oil production and the fact that U.S. oil production increase tied the highest level since November of 2015. Not even President Trump’s withdrawal from the Paris Climate Accord could give the market the lift it needed.
If you look at data from the American Petroleum Institute (API) you will see that it is obvious that OPEC/non-OPEC production cuts are starting to have an impact on U.S. oil inventory. The API not only reported a whopping 8.67-million-barrel drawdown in oil inventory last week, they also reported that during the last five weeks there has been a drop of over 19.277 million barrels.