It’s getting downright whacky on the energy markets.

The past week saw a major selloff in crude and gasoline futures prompted by news that Libya had resumed oil operations and Saudia Arabia confirming it had raised oil production 500,000 barrels a day in June. Normally, taken out of context, that alone would serve to temper oil prices, but the mere fact that according to the Energy Information Agency’s, Weekly Petroleum Status Report on Wednesday, that U.S. domestic crude supplies sunk a near historic 12.9 million barrels the previous week ending July 6, should have been a clue that not all is well with global crude supply.

Indeed, with Canada’s 350,000 barrel-a-day Syncrude export to U.S. Midwest and Gulf Coast refineries down until at least September, Venezuelan output in shambles, rising global demand and the re-imposition of an oil embargo on Iran looming, the International Energy Agency issued a warning on Thursday in its latest monthly report, suggesting all is not as rosy as some traders, money managers and analysts think and may well wish to ignore the soothing siren calls of optimism by OPEC aficionados. In the IEA’s estimation, “rising production from the Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched the limit.”

The concern raised by the IEA is based on the theory that the Organization of Petroleum Exporting Countries (OPEC), Russia and a handful of other countries like the U.S., which is itself struggling to maintain higher output given infrastructure challenges, which are now increasing output to compensate for the noted declines elsewhere, any minor future disruption in vital oil-producing regions could cause prices to spike.

If the data offered by Genscape, which analyzes oil inventories globally, is to be taken at face value, it points out that inventories at the all-important WTI reference price point at Cushing, Oklahoma delivery hub has dropped again this week by an estimated 929,000 barrels. Inevitably, we could conclude that next week’s EIA weekly data report will show yet another significant drop in supplies and likely prompt distracted traders to review their bearish outlooks.

Its also important to remember that four years of underinvestment in oil exploration and development coupled with calls by the Trump Administration to others to pump more oil, may only serve to accelerate the drawdown of critical oil spare capacity,which while driving down crude prices short term, as witnessed this past week, may ironically be setting the world up for another energy super-cycle.

Presented with a myriad of information and data, many seem caught up in the minutia of daily energy headlines. The underlying fundamentals may, therefore, be easy to ignore, but the risks of doing so may soon come at our collective expense.

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