Energy Report: Toppy And Floppy

Oil traders are forgetting the bullish underlying fundamentals for oil and instead focusing on the drama between the UAE and Saudi Arabia. Their decision to raise production and the UAE's desire to increase its own production could lead to a breakdown of the OPEC plus alliance. From a technical standpoint, the market does look a little toppy. The combination of the 4th of July holiday peak, as well as the OPEC drama, seems to be overshadowing the fact that oil supplies are still very tight.

The crude oil market sold off a bit overnight as reports came out that OPEC plus did increase their oil production last month by 540,000 barrels due to strong demand for crude. At the same time, their compliance rate runs at 110%. There's growing pressure on the OPEC plus cartel to provide more oil and with the UAE getting ready to go it alone, the markets may anticipate more oil.

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Putting the drama aside and looking at the oil inventory numbers, there is no doubt that we need more oil. The American Petroleum Institute suggested that the record-breaking drop in US crude supplies continues. In their weekly report, the API reported that crude oil inventories fell 7.983 million barrels. Surprisingly though, supplies in Cushing, OK rose by 152 thousand barrels. Most people expected those supplies to fall. The API reported a big drop in gasoline supplies to the tune of 2.736 million barrels that was reflective of gasoline going up to meet the surge and demand for the 4th of July holiday. The API reported that distilling inventories rose by 1.086 million barrels.

Now the question is will any of this matter. A lot of traders are still focused on the OPEC spat. Oil prices got hit hard with the report that the UAE wants to raise oil production. The Wall Street Journal reported that “Behind the standoff inside OPEC over whether to boost oil production is a key cartel member with a new strategy: sell as much crude as possible before demand dries up. The United Arab Emirates’s strategy, as described by officials familiar with the matter, represents one of the most significant shifts in oil policy by a major Mideast petrostate. For years, the region’s oil-producing governments have said they aren’t worried about finding crude buyers far into the future. The U.A.E., which holds some of the world’s largest untapped crude reserves, is breaking from that orthodoxy, according to people familiar with the strategy. “This is the time to maximize the value of the country’s hydrocarbon resources, while they have value,” said a person briefed on the U.A.E.’s strategy. “The investment aims to generate revenue for the diversification of the economy, both for investment in new energy and, as importantly, in new revenue streams.”

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