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API reports build while the market awaits EIA report

There has been a lot of fundamental shift both on the upside and the downside. The North American benchmark WTI is currently trading at $46.5 per barrel and Brent at $2.5 per barrel premium to WTI.

Key factors at play in crude oil market –

  • Middle East brawl entered its second month as nine countries like Saudi Arabia, United Arab Emirates, Bahrain, Egypt, and Yemen has severed diplomatic ties with Qatar citing the latter’s support for extremist ideas and terrorist groups, and also of meddling in other countries’ affairs.
  • Kuwait, which is mediating in the crisis, handed Qatar 13-point demands made by the opponent gulf countries. Qatar has refused to give into the demands.
  • After Qatar’s rejection, Saudi-led Gulf states announced a continued embargo on Qatar and indicated at future possible actions.
  • Venezuela is suffering a major political crisis, which could see a sharp drop in supplies from Venezuela that is close to 2 million barrels.
  • Ecuador became the first country to shy away from the OPEC agreement. Will increase production gradually.
  • OPEC production increased by 393,000 barrels per day in June compared to the previous month. In May production increased by 366,000 barrels per day.
  • Iran is pushing for an increase in production to 4 million barrels per day by the end of the year.
  • Libya will increase production to 1 million barrels per day by the end of July.
  • OPEC’s oil exports declined in June by 250,000 barrels per day.
  • The US production stands at 9.4 million barrels per day.
  • The oil market is back in contango, currently at $0.08 per barrel.
  • API reported a build of 1.6 million barrels of crude oil.

Today’s inventory report from US Energy Information Administration (EIA) will be released at 14:30 GMT.

Trade idea –

  • We continue to maintain bearish outlook in oil and expect WTI to decline towards $40 per barrel. We recommended partial profit bookings as the price reached the first target around $42 per barrel. Recommend selling around $46 per barrel and at rallies.

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