Oil prices are rising. We have a falling U.S. oil rig count and a surprise drop in Saudi oil production, against a backdrop of increasing geopolitical risk. Baker Hughes’ oil rig was countdown two, gas rig count dipped by three.

Reuters reported that Saudi Arabia pumped around 10.29 million barrels per day (bpd) of crude in July, two OPEC sources said on Friday, down about 200,000 bpd from a month earlier.  This is a good reason for oil to rise as many thought that last month’s production increase near a record high production rate meant the Saudis would keep the market well supplied during maintenance season. In fact, with so much geopolitical risk it is hard to know where to start.

Reports overnight that hundreds of Iraqis demonstrated in the southern city of Basra on Sunday amid a growing anger over high unemployment and poor public utilities. Protesters blocked a main road to crude oil tankers near Al-Qurna oil field west of Basra, according to local media. Security forces have tightened up security measures near the oilfield to avoid any escalation, as reported by ALBWABA news. Secretary of State Mike Pompeo says the White House is ready to enforce sanctions against Iran that will be re-imposed starting Monday. “It’s an important part of our efforts to push back against Iranian malign activity,” he said. “The United States is going to enforce these sanctions.”

This comes after Reuters reported that Iran’s Revolutionary Guards confirmed on Sunday it had held war games in the Gulf over the past several days, saying they were aimed at “confronting possible threats” by enemies, the state news agency IRNA reported.

In a presidential speech, Venezuelan President Nicolas Maduro cut short a speech when drones went off and exploded on Saturday during a military event and soldiers were seen running before the televised transmission was cut short. Officials later said Maduro was the target of a drone “attack” but was unharmed. Six people were arrested for the so-called terrorist attack. Some think it was a staged event to give Maduro an excuse to round up some of his political enemies.

Trade war fallout. Reuters reports that the latest Chinese response included proposed tariffs on liquefied natural gas (LNG). The fuel now joins crude oil, certain refined products and coal on the list of U.S. imports that may be slapped with duties of up to 25 percent. In some ways, the addition of LNG to the list is symbolic. It’s already clear that Chinese companies have dramatically scaled back their purchases of U.S. energy products. China imported about 313,000 barrels per day of U.S. crude in the first six months of 2018, according to vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts. At about $70 a barrel, this was worth just below $4 billion, giving a potential annual trade of around $8 billion.

Oil Price is reporting that Canada Natural Resources, the largest producer, is allocating capital to lighter oil drilling and is curtailing heavy oil production as the price of Canadian heavy oil tumbled to a nearly five-year-low relative to the U.S. benchmark price. Due to the transportation bottlenecks, the discount at which Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—trades relative to WTI has been more than U.S. $20 this year.

Oil is in the calm before the storm mode. Seasonal softness in demand ahead can’t account for the structurally undersupplied market. With shale oil production estimates falling, and OPEC Saudi production less than stable it’s time to get hedged.