Energy Report: 100 Million Barrels

While these oil demand expectations are very bullish in the long run, in the short term we've seen one of the worst stretches for prices in a couple of months. There are many reasons. The first reason is the 4th of July peak. Many times, as we have stated before, there is a bit of a correction around the 4th of July, then consolidation, and then depending on the fundamentals, the next move higher or lower begins.

We feel very confident that the move most likely will be higher. That is mainly because USA oil inventories will continue to fall dramatically in the next couple of months. 

Another reason we saw the oil price drop is because of the uncertainties surrounding the OPEC Plus Russia agreement. While there was a lot of talk about a compromise between Saudi Arabia and the UAE, so far there is no deal. It seems that there was a disagreement as to how long they should keep this new agreement in place.

The other problem that they're having is that other countries now are looking at the deal that the UAE is getting and they want more barrels for themselves, That leads to a larger fear for oil traders that this little dispute could blow up and end up into another oil production war.

One other reason why we sold off is simply due to option expiration. We saw a big unwinding of some of the time spreads in oil. It seemed like we had a lot of financial jockeying going on as the clock ran out on the August options.

There was also some concern about the COVID-19 variance and whether or not that would lead to more lockdowns of the global economy, thereby putting downward pressure on demand. There were peripheral reports of slowing demand in India and China, though the trend for both of those countries seems to have demand on an upward trajectory.

We think that the oil correction phase will end soon though it might be a little choppy here for the next couple of weeks. We believe that once the reality starts setting in surrounding the tight supply situation in August, we should see this market resume its trek to new highs. You should expect to see a great opportunity to lock in hedges. So if you have upside risk to oil prices, this might be a good opportunity to get hedged. I know I sound like a broken record when it comes to the hedging side of the equation. For the last year I continue to warn people to get hedged because of the potential upside risk in prices. Those risks have not gone away. We are facing a market that is going to be undersupplied even if OPEC does agree.

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