Crude prices got whacked on oil supply, real and imagined. Talk of futures strategic petroleum reserve releases along with signs of real increases of production in some OPEC countries sent oil into the basement. Weak economic data out of China and some warnings about trade wars by the International Monetary Fund did not help and it overshadowed the reality that U.S. oil supplies will probably fall dramatically again this week.
The world’s oil-consuming nations are showing growing unease about the rapidly tightening global crude oil market and are considering releasing oil from their strategic petroleum reserves. On Friday, Bloomberg News reported that the Trump Administration is reviewing options ranging from a 5 million-barrel test sale to the release of 30 million barrels from its oil reserve to cool pump prices ahead of congressional elections in November and as sanctions on Iran are due to snap back.
Expect more crude oil price volatility as the global oil market can flip from a global supply surplus to a global supply deficit at the drop of a hat. The market is trying to assess whether more sources of oil will get us to the point where daily global oil production is once again ahead of our daily consumption. So far it has not.
The biggest crude oil draw since 2016 was not enough to stop oil from a major drop in price. A slew of oil supply side stories includes the resumption of Libyan crude exports, an increase in Saudi Arabia crude output, possible waivers on U.S. sanctions on Iranian oil and reports that oil is on the agenda when President Donald Trump and Russian President Vladimir Putin meet next month.
The Trump Administration has a knack for cooling down crude oil prices every time they look to be getting out of control. Trade War talk, potential wavers on an Iranian oil embargo, and telling Germany that they are captive to Russia because of the reliance on them for energy supply, not to mention the resumption of some Libyan oil exports cooled off prices as they were boiling over due to rapidly falling U.S. supply.
U.S. benchmarks are extending gains for a fourth consecutive day and the S&P traded to the highest level since March 13th. The overnight high of 2797.75 took out the June 13 high of 2796. What trade war? Of course, at these levels markets are not pricing in the risk of an escalating trade war.
The Energy Report gave an early warning about the state of the crude market we are in now. We warned producers and users of oil, gas and diesel to hedge. Now there are reports of airlines reducing capacity and businesses that are struggling due to higher crude and product costs. The recent oil price strength was born in the price crash in 2015 as it forced companies to cut investment and incorrect assessments about shale oil and the outlook for demand.