The EIA report showed a 4.1 million draw in US crude oil inventories

Recap: Oil prices were mixed right out of the gate, with Brent posting early gains, while WTI remained below unchanged. This scenario lasted up until the release of the EIA report, which showed a 4.1 million barrel draw in U.S. crude oil inventories. Expectations were calling for a decrease of 2.7 million barrels. July WTI shot up 62 cents, or 0.9%, to a fresh high of $66.85 before falling into a state of equilibrium, trading within a 23 cent range during a mid-afternoon lull, but remained above unchanged. A successful last ditch effort to break out of the sideways trading pattern ensued, with traders being able to push this market to a new high of $66.89. Brent followed suit, trading at a new high of $76.87. The rally ran out of steam, and gains were slightly trimmed, with July WTI settling at $66.64 a barrel, up 28 cents, or 0.42% and the highest settlement since May 31. August Brent added 86 cents, or 1.13%, to settle at $76.74 a barrel.    

July RBOB finished up 1.7% to $2.125 a gallon, while July heating oil added 1.1% to $2.185 a gallon.

Fundamental News: US President Donald Trump renewed his attack on OPEC and again criticized the coalition of petroleum producing countries for rising oil prices.  In a tweet, he said oil prices are too high.  He blamed OPEC for high oil prices.  In response, Iran accused him of stoking volatility after he withdrew from the nuclear agreement last month.  Iran’s OPEC governor, Hossein Kazempour Ardebili, said “you cannot place sanctions on two OPEC founder members and still blame OPEC for oil price volatility.”   

A spokesman for the Atomic Energy Organization of Iran said Iran will begin uranium enrichment at its Fordow plant and will install new nuclear equipment at its Natanz facility if it withdraws from a nuclear deal with major powers. 

The IEA stated that Iran and Venezuela could lose about 30% of their oil output next year due to US sanctions and economic problems, requiring extra supplies from OPEC’s Gulf members.  The IEA said new oil supply from outside OPEC, particularly US shale, should be enough to cover growth in demand.  However countries such as Saudi Arabia may still need to increase output to compensate for lost supply from other members. The IEA also stated that spare production capacity held by OPEC members in the second half of 2019 could fall to 1.5 million bpd, its lowest level since the end of 2016, if supplies from Iran are impacted by sanctions and Venezuela’s output continues to fall.  OPEC’s spare capacity is about 3.4 million bpd, with Saudi Arabia holding about 60%.  The IEA oil demand is expected to increase steadily in 2019 thanks to a solid economy but added that the world may face a large supply gap by late next year if OPEC cannot cover any supply shortfalls.  It expects global oil demand to increase by 1.4 million bpd in 2019 to top 100 million bpd by the second quarter of the year.  The agency expects demand to increase by the same rate this year, unchanged from its last report in May. 

Russia plans to propose that OPEC and its allies be allowed to return production to October 2016 levels, rolling back most but not all of their output cuts within three months.  The countries would proportionally share a 1.8 million bpd increase to their output limit starting as soon as July. 

The boom in US shale shipments has surpassed OPEC’s production cuts and pushed millions of barrels into European waters, where more crude is being stored on ships than at any time in the last 18 months.  At a monthly average in May of 12.9 million barrels, or 26% of total global floating storage, Europe had more oil in floating storage than the Asia-Pacific region at 9.7 million barrels.  In March-April, Europe’s share was 10% compared with 40% in Asia-Pacific. 

Early Market Call – as of 8:40 AM EDT

WTI – July $67.11, up 48 cents 

RBOB – July $2.1162, down 87 points

HO – July $2.1802, down 51 points 

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