Morning Market Overview

Prices are currently mixed this Tuesday morning.

Today there are more positives than negatives circulating over the media airwaves suggesting that the decline in oil prices seen yesterday was primarily a result of profit taking selling after last week’s strong move to the upside. Stability seems to have emerged in the global equity markets with the US Dow surging strongly higher while the US dollar is lower versus most currency pairs… both a positive for oil prices.

On the tariff front talks are already underway between the US and China regarding bilateral trade and as such there are no early signs that a trade war is imminent. Further supporting oil prices, in general, is a rising awareness and risk from the evolving geopolitical issues in the Middle East. The proxy war between Saudi Arabia and Iran in Yemen was in the news on Sunday when the Iranian backed Houthi rebels launched 7 missiles at Saudi Arabia’s capital. Fortunately, they were intercepted but this situation is not improving, and the risk of escalation is growing.

Also, there is growing concern that the US may not roll over the Iranian nuclear deal and as such the potential for supply issues could also be on the rise from this part of the region. We do not see anything bearish today with the early market projections for this week’s round of inventory reports biased to the bullish side as total combined stocks of crude oil and refined products are likely to decline again this week.

The fundamentals are coming down to two major elements… the growth of US crude oil production versus growth of global US oil consumption. If consumption continues to grow at least at the same rate as US crude oil production and OPEC maintains their cut regime global stocks are likely to remain in a destocking pattern and be supportive for prices. At this point, we see more upside price risk rather than downside risk…