Market Report & Analysis for 7/3/2018 Morning Edition

Morning Market Overview

After rising strongly last week and adding to the gains since OPEC announced about a 1 million bpd increase in production prices could be in for a rough week in a shortened trading week.

After the spot WTI contract increased slightly over 8 percent last week President Trump spoke to the King of Saudi Arabia who said Saudi Arabia will boost production if needed. According to a Reuter’s article on Sunday the King promised President Trump that they could raise production if needed and the country has 2 million bpd of spare capacity. It is in the interest of both the US President and Saudi to put a cap on prices especially if it impacts and replaces lost Iranian crude oil exports.

Lower prices are a positive for Trump and the republicans in the upcoming mid- term elections in November while any negative impact on Iran will only bolster Saudi Arabia’s position in the region as well as in the ongoing proxy war between Saudi Arabia and Iran in Yemen. The King’s statements coupled with the pledge of OPEC and select non-OPEC producing countries to raise production about 1 million bpd could now be enough to put a cap on prices over the coming weeks.

With the Independence Day holiday in the US mid-week liquidity could be at a below normal level resulting in exaggerated moves in prices in either direction. Friday afternoon the latest Baker Hughes data hit the media airwaves reporting the number of rigs deployed to the US oil sector decreased again last week by 4 rigs after decreasing marginally during the previous week.

The latest rig data continues to support the view that the uptrend in the US oil rig count may be stabilizing and possibly topping out. Total rigs deployed to the oil sector are higher by 102 or 13.5 percent year over year. Total US crude oil production is about 19.5 percent above where it was for the same week a year ago. This week’s production came in at 10.962 million bpd.