Morning Market Overview

Early Monday morning we are seeing some strength come back into the market. Whether it is truly strength coming back or just a dead-cat bounce from last week is yet to be seen. Just about every asset class in the global trading world shed value last week including the oil complex.

Oil prices declined significantly on a combination of bearish fundamental data released last week coupled by a huge decline in global equities accompanied by an upside recovery in the US dollar versus most major currencies. Both the internal and externals for the oil complex were all bearish last week and as such long side traders headed to the sidelines in mass numbers. The spot WTI contract declined almost 10 percent on the week or the largest single one week decline in a very long time.

On the fundamental front aside from a larger than expected build in crude oil stocks as well as total combined stocks of crude oil and refined products in the US the headline US crude oil production number just sent the longs running quickly for the exits.

The EIA reported the single largest one-week average US crude oil production level exceeding all the data points from 1970 when US production last set record highs. This coupled with US drilling rigs deployed to the oil sector surging higher is yet another sign that US production is likely hit levels in 2018 that will set the US as the top global producer of crude oil. On the external front the long-awaited correction in global equity markets finally arrived and in an explosive manner. US equites declined around 10 percent from the highs over the last week or so as the falling US dollar also finally gained some traction in a modest round of short covering.

The catalyst that moved the financial markets is an evolving view that the US Central Bank may raise short term interest rates at a faster pace than originally expected as the US economy continues to improve strongly along with many other economies around the globe. We remain of the view that the global financial (equities & currencies) markets are still in a correction rather than at the beginning stages of a structural change in the underlying direction of these asset classes.

As such we expect these markets to stabilize soon providing support to the commodity sector including the oil complex.

In the latest Baker Hughes report issued on Friday the number of rigs deployed to the oil sector increased strongly on the week (by 26 rigs) after increasing during the previous week. The latest rig data is suggesting that the US oil rig count is back in an uptrend after increasing for the last three weeks in a row.