Morning Market Overview

On Friday night the US Federal Government failed to pass a budget extension. As such parts of the government will have to throttle back operations. In the energy sector we assume oil and Nat Gas weekly data will not be interrupted based on the Department of Energy indicating on Friday that since most of its appropriations are for multiple years, employees should report to work as normal during a shutdown until told otherwise.

If there was a prolonged lapse in funding a “limited number” of workers may be placed on furlough, according to its plan. We assume until further information emerges the EIA will release their oil inventory report on Wednesday morning and Nat Gas on Thursday morning.

The API data will be released on its regular schedule as they are a private industry organization. Oil prices ended the trading week on the defensive as well as logging a weekly decline as the mostly bullish EIA weekly inventory snapshot was offset on Friday by the International Energy Agency’s (IEA) overall bearish monthly oil forecast. In a nutshell the IEA report as well as the weekly EIA data have raised concern that global supply may start to outstrip demand once again and result in the current inventory destocking pattern approaching a cross road.

If the projections turn out to be accurate it will result in additional pressure on OPEC and its non-OPEC partners to the production cutting accord to potentially consider increasing the magnitude of the cuts and for a longer period if they want to push global inventories down to normal historical levels (five-year average).

There is still a lot of uncertainty as to how the global supply and demand balances will evolve across 2018. The price deterioration last week was very modest relative to the price gains since the upward trending rally began in early December of last year.