Morning Market Overview

Oil prices surged higher last week after declining for the previous two weeks as market participants became less concerned over the risk of trade wars between the US and China while moving their focus to the evolving geopolitical exposure in the Middle East.

In fact, after the market closed on Friday the US, France and the UK all participated in the retaliatory surgical bombing of three chemical weapons facilities in Syria after Syria used chemical weapons a few weeks earlier. We anticipate the bombings will raise the geopolitical awareness another notch as Russia has clearly denounced the action and leaves open a possibility of some sort of retaliation.

We do not believe they will retaliate but the exposure exists. This is likely to push oil prices further to the upside at least early in the week or at a minimum act as a price put for the short term.

On the fundamental front the weekly inventory snapshot was biased to the bearish side last week but two of the three-monthly oil projections were supportive. The last of the three reports issued by the IEA suggests that OECD inventories could hit or even drop below the five-year average level within the next few months.

A negative data point hit the media airwaves late Friday afternoon in the latest Baker Hughes data reporting the number of rigs deployed to the US oil sector increased on the week (by 7 rigs) after increasing during the previous week. The latest rig data still supports the overall uptrend in the US oil rig count remains. Total rigs deployed to the oil sector are higher by 132 or 19.3 percent year over year. US crude oil production continues in an uptrend setting new record highs on a weekly basis. Total US crude oil production is about 14.72 percent above where it was for the same week a year ago. This week’s production came in at 10.525 million bpd.