Morning Market Overview

Oil prices ended the week higher gaining for the second week in a row as the complex continues to recover from the early February sell-off. Last week’s fundamental snapshot released in the US was supportive showing another decline in total combined stocks of crude oil and refined products. Total US stock are now 161 million barrels below the high hit in the middle of February of 2017 and only 24.8 million barrels above the five-year average.

Barring a major change in US supply and demand balances total US combined inventories should return to the five-year average by the end of Q1 or early Q2. US inventories represent a major portion of global inventories and the return of US stocks to the five-year average at a time when US crude oil production is steadily growing is a great accomplishment for OPEC and the non-OPEC participating producers to the production cutting accord.

OPEC remains resolved and is already talking about the potential to extend the cuts well beyond 2018. A long-term agreement will be discussed at the next OPEC meeting in June. In addition to receiving support from the short-term fundamentals the oil complex has garnered some support from the externals.

The US dollar has not been overly supportive over the last few weeks (but has been before that period) as it has been rising (US Dollar Index) with the 10-day average correlation between the US dollar Index and the spot WTI contract narrowing to only a negative 0.2296 or not strongly correlated.

On the other hand the relationship between US equities and the spot WTI contract has moved into a very strong correlation over the last two weeks. The 10-day average correlation has surged to 0.868 or a very strong positive relationship. The market has been placing a bit more emphasis on the equity/oil relationship versus the US dollar/oil correlation.