Market Report & Analysis for 5/16/2018 Morning Edition

Morning Market Overview

The combination of evolving geopolitical issues in the Middle East coupled with a slightly supportive monthly oil forecast report issued by OPEC this morning kept oil prices in positive territory throughout the trading session.

As we have been discussing for several weeks the current short-term direction of oil prices is primarily being driven by the oil-related geopolitics around the world. With global oil inventories approaching the so-called normal level or 5-year average the inventory cushion that has been around for several years is all but gone. The unknown as to what will be the impact on Iran’s oil exports from the US pulling out of the nuclear deal will at a minimum act as a floor on prices.
If it does lead to significant interruptions in exports (we do not think so) the market could then be susceptible to price spikes until OPEC covers any Iranian crude losses (which we believe they will). We are still of the view that in the short and medium term the direction of oil prices is likely to be higher as the uptrend remains in play. On the financial front global equity markets were mixed over the last twenty- four hours. The EMI Index is slightly higher after a modest gain in US equities.

The EMI Index increased .02 percent on the day with the year to date gain at 5.3 percent. Eight of the ten bourses in the Index are now in positive territory for 2018 with China still holding the worst performing spot in the Index with Brazil in the top spot with an 11.5 percent gain for the year. The positive value direction in global equity markets today was a positive price driver for the oil complex. On the currency front, the US dollar Index is higher on the day with the Yen/USD and the Euro/USD lower.

Overall the currency markets are currently a slightly negative price driver for the oil complex.