Morning Market Overview

The oil complex traded in a choppy trading pattern yesterday with headwinds still evolving from last week’s bearish IEA monthly oil forecast report as well as the uncertainty over the US government shutdown. However, by the afternoon the oil market moved out of negative territory and ended the session on the positive side of the ledger as the US Government shutdown ended and positive comments from the Saudi Oil Minister helped to relax market participants.

The Saudi Oil Minister said on Sunday (Dow Jones) “We should not limit our efforts to 2018. We need to be talking about a longer framework for our cooperation,” Saudi Arabian Energy Minister Khalid al-Falih said on the sidelines of a meeting of the Organization of the Petroleum Exporting Countries on Sunday in Oman. Commenting on an OPEC-led agreement with nonmember allies like Russia to curb output, Mr. Falih said the group’s message should be: “This is something that is here to stay.”

After the IEA forecast suggested that 2018 could see supply slightly outstripping demand on average across the year) and thus a return to inventory building. The Saudi comment helped to relieve the fear that OPEC would run away from the deal. Rather the comment suggests that Saudi Arabia (who holds a lot of influence in OPEC and beyond) seems ready to commit to an even longer term to manage production and support prices. His comment could lead one to believe that not only are they looking at beyond 2018 for the production cut but possibly even deepening the cuts to offset the assault from the US shale oil industry.

Oil prices stabilized ending the session higher after declining for the previous three out of the last four trading days. The market put in a short- term top on Jan 16 when the spot March Brent contract hit and traded above $70/bbl on an intraday basis. Oil prices may be entering a bit of a consolidation phase before it makes its next move (in either direction).

That said we still view the market more from a buy the dip rather than enter a short position at this phase of the upward price trend.