White House Comment Tempers Oil's Gains 

CNBC Senior Energy Correspondent Sharon Epperson shared this report from the NYMEX.

West Texas Intermediate oil futures surged Wednesday, outpacing gains in Brent crude at midday. WTI oil futures were up nearly 3 percent, above $101.50, at the day's highs, while Brent futures were up over 1.5 percent, trading above $118 per barrel. Oil futures have since given up about half those gains after the White House commented that President Obama would consider opening strategic reserves to guarantee adequate supply.

The gain in U.S. oil futures is not only a reaction to OPEC failing to reach an agreement on quotas or production—a big upset to the consensus view that we’d see some type of supply increase. It’s also a result of a bigger-than-than expected drop in oil supplies in weekly EIA data, the biggest week-over-week decrease since December 2010.

More important, however, is the huge short squeeze going on right now as traders who were short WTI-long Brent cover positions. The Brent-WTI spread has come in sharply, down over 5 percent on July contracts today, after hitting a record on Tuesday.

Some traders see OPEC’s lack of agreement as an opportunity for the Saudis and other producers to add more barrels to market at will, a bearish indicator for oil prices. Those who got short this morning on this view are now getting squeezed.

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