Oil prices continue to be weak as another rise in U.S. oil rig counts overshadows the fact that U.S. production in June is well below what the Energy Information Administration was predicting. The mood is still bleak as Libya says they want to raise production to one million barrels a day despite reports of shipments out of East Libya being halted. Atlantic storms are warning that this hurricane season may be an active one. Crude oil is in a rut and the bears seem to have control even as we are hitting price levels that could put at risk U.S. shale oil output.

Rig counts are one reason for the bearish oil malaise. The oil rig count increased for the 22 second week in a row by 6 to 747 rigs even as U.S. production increased by only 12.000 barrels in the month of June. Despite the increase in drilling, rig completions are falling and production is not rising as quickly as predicted. With oil hovering just above shale producer’s point of pain, oil may need to snap back of the production promise or these wells may just fall flat.

Yet Reuters is reporting that Saudi energy minister Khalid al-Falih said the oil market is heading in the right direction but still needs time to rebalance, the London-based newspaper Asharq al-Awsat reported on Monday. "In my opinion, market fundamentals are going in the right direction, but considering the large surplus in stockpiles over the past years, the cut needs time to take effect," he told the newspaper, referring to a global deal to curb oil production. "Current expectations indicate the market will rebalance in the fourth quarter of this year, considering an increase in shale oil production," he said. Asked about the recent drop in oil prices, Falih said: "Markets determine prices but are themselves driven by unpredictable variables beyond the control of producing nations." "Short-term volatility is mostly a reaction to short-term factors ... as well as the role of speculators in stock markets that increase market volatility.”

The market may start to take note of two tropical storms that are brewing in the Atlantic. The National Hurricane Center says that one storm has an, "80 percent chance of developing into a named tropical system in the next 48 hours and some forecasters have the storm going different directions when it gets into the Gulf of Mexico. The NHC says that a broad area of low pressure located near the east coast of the Yucatan Peninsula continues to produce a large area of disorganized showers and thunderstorms along with winds to gale force several hundred miles to the east and northeast of the estimated center. The low continues to lack a well-defined center of circulation. However, gradual development of this system is expected when it moves over the southern or central Gulf of Mexico later today and Tuesday, where a tropical or subtropical cyclone is likely to form. Regardless of development, heavy rains are expected to continue over portions of Central America, the Yucatan Peninsula, Jamaica, the Cayman Islands, and western Cuba during the next few days. Formation chance through 48 hours...high...80 percent. Formation chance through 5 days...high...90 percent. An Air Force Reserve Hurricane Hunter aircraft is scheduled to investigate this system today."

Most current data models continue to show the system tracking north into the central Gulf Coast states. While at this point the storm is not expected to be a monster, it could cause production shutdowns in the Gulf of Mexico if it does develop. The second disturbance is further south and has a 90% chance to be a named storm in the next 48 hours. If the systems organize into tropical storms, they will be called Bret and Cindy.

Natural gas is falling on a cooling weather outlook for the next 10 to 15 days. But Andrew Weissman of EBW AnalyticsGroup says that this decline in gas prices is likely to be temporary. Storage is on a trajectory that is much too low to be sustained, and the July and August forecasts have turned increasingly bullish. Steep price increases will be needed later in the injection season to balance the market. Anomalous warmth over much of the eastern parts of the country – including demand-driving regions in the southern U.S. – could meaningfully support day ahead prices this week. Solidifying physical demand may also boost wholesale electricity futures prices.