Where are the fireworks? Oil seems to be settling back down in a post-holiday haze as geopolitical tensions with Iran heat up, but oil demand expectations seem to be coming down. It appears that good news on the jobs front was bad news for the rate cuts as traders seemed to think that Friday’s blockbuster job numbers would have the Fed reverse course. The U.S. added 224,000 jobs in June beating expectations of 164,000 jobs. The unemployment rate rose to 3.7 percent, from 3.6 percent in May as more job seekers entered back into the workforce.

Those fears had the oil hedge funds start to add on to their short positions pushing their short position to a 5-month high. Isn’t anyone going to complain that speculators might be driving prices lower than they should be? I did not think so.

Yet Iran is claiming that it is enriching uranium above the levels agreed to in the Iran nuclear, known as the JCPOA. They are also threatening retaliation for the UK taking an Iranian oil tanker. They have threatened to seize UK ships and turn the Persian Gulf into a sea of blood.

Reuters reported that “Britain’s seizing of an Iranian oil tanker last week was a threatening act that will not be tolerated, Iran’s Defense Minister Amir Hatami said on Monday in a speech broadcast live on state television.” 

Royal Marines impounded the tanker in Gibraltar on Thursday on suspicion it was carrying oil to Syria in violation of European Union sanctions. Iran denies the vessel was headed to Syria, where the government of President Bashar al-Assad is an ally of Tehran. Authorities in the British territory said the tanker can be held for up to 14 days. An Iranian Revolutionary Guards commander threatened to seize a British ship in retaliation.

Reuters is reporting that despite near-record Chines oil imports they may see a drop-in refinery demand. Reuters is reporting that “China’s fuel producers are making extended curbs to their output in the third quarter after supply from mammoth new refineries stoked an already-sizeable glut, potentially dragging on crude oil demand from the world’s biggest importer of the commodity.”

U.S. shale is producing a record amount of oil but there are signs that may stagnate. The Baker Hughes Rig Count showed that U.S. oil and gas rig count fell by 4 this week. The total number of active oil rigs in the United States fell by 5 according to the report, reaching 788. The number of active gas rigs increased by 1 to reach 174. The combined oil and gas rig count is 963 for the week, with oil seeing a 75-rig decrease year on year and gas rigs down 13 since this time last year. The combined oil and gas rig count is down 89 year on year according to Oil Price.

The Wall Street Journal reports in a must-read that “A Fracking Experiment Fails to Pump as Predicted.” Encana’s cube project suggests output problems occur if oil wells are drilled too close together. The Journal writes that “Two years ago, Encana Corp. unveiled a supersize fracking operation that many said would represent the future of the U.S. drilling boom.”

To reduce costs and avoid production problems that can occur when single shale wells are spaced too closely together, the company introduced the cube, an experiment in which it would complete as many as 60 oil and natural-gas wells from one location. Chief Executive Doug Suttles described the results in glowing terms, and many of the wells looked promising when they started producing in 2017. But their performance has fallen off significantly, according to a Wall Street Journal analysis of well data. The results of Encana’s cube—the premier example of scaling up in the heart of the U.S. oil boom—suggest that operators have yet to find a solution to the challenge of production losses that occur when new wells are drilled too closely to old ones. The problem affects dozens of producers, which face the risk of eventually running out of locations, and some executives and analysts have warned that U.S. production could peak far sooner than expected.” Stay tuned

Natural gas is getting a pop as hot weather is being predicted in our future. The Wall Street Journal in another must read says that “The U.S. Is overflowing with Natural Gas. Not Everyone Can Get It. U.S. gas production is at a record high, but the infrastructure needed to move the fuel around the country hasn’t kept up. Gas production rose to a record of more than 37 trillion cubic feet last year, up 44% from a decade earlier. Yet the infrastructure needed to move gas around the country hasn’t kept up. Pipelines aren’t in the right places, and when they are, they’re usually decades old and often too small.”

Oil and Nat gas are giving us nice ranges. We can see a situation for trades to fade both up and down moves. Trade numbers and levels are good with plenty of movement to make it worthwhile.