Morning Market Overview

The market is showing a bit of weakness to start the Monday morning trading week. Crude is down as well as refined products with ULSD off the most. Oil prices ended the week strongly higher on positive short-term fundamentals and a declining US dollar along with surging global equity values.

Last week both the internals and the externals were supportive for oil prices sending the spot WTI contract higher by almost 4.5 percent and Brent 2.8 percent higher. The medium-term uptrend remains in play and will likely remain in place until there is a decided change in the overall global inventory destocking pattern and/or a strong firming of the US dollar versus most major currency pairs.

The externals (direction of the US dollar and global equity values) are adding upward price momentum and short-term price support. The dollar was hit with a strong round of selling last week after the US Treasury Secretary said a weaker dollar in the short term is a positive for the US.

The President countered the Treasury Secretary’s comments by saying they were taken out of context, but the floodgates were opened, and dollar bears came out in full force. A declining US dollar is inversely corelated to oil and commodity prices in general. The lower the US dollar moves the more supportive it is for oil prices. A declining dollar is not in the interest of OPEC as international crude oil is transacted in US dollars. The following chart shows the daily OPEC basket price of crude oil in US dollars and adjusted by the US Dollar Index.

The US dollar Index is composed of seven major currencies against the US dollar with the euro holding the largest weight in the Index (57.6 percent). When the Index declines it means the US dollar is weakening against the weighted basket of currencies in the Index.

In the latest Baker Hughes report issued on Friday the number of rigs deployed to the oil sector increased on the week (by 12rigs) after decreasing during the previous week. The latest rig data is suggesting that a short-term top in rig deployment may now not be in place. Total rigs deployed to the oil sector are higher by 193 or 34.1 percent year over year. Oil rigs increased as did US crude oil production last week.

US crude oil production continues in an uptrend exceeding the high from June of 2015. Total US crude oil production is now 241,000 bpd above the average annual record high in 1970 and just 135,000 below the record monthly high in October of 1970. Total US crude oil production is about 10.46 percent above where it was for the same week a year ago. This week’s production came in at 9.878 million bpd.