Morning Market Overview

Weakness continues to hang over the refined products and crude markets this morning. After a strong move to the upside last week the oil complex started the new trading week on the defensive Monday. As discussed previously the second half of last week’s oil price move to the upside was primarily driven by the externals… falling US dollar & rising global equities.

In the same light Monday’s oil price retracement is also being driven by the externals but this time in a different direction. As warned, the US dollar and equities were all on the cusp of a correction. Yesterday we saw a light short covering upside correction in the US dollar along with modest profit taking selling in the equity complex both resulting in some of the long side oil traders also booking profit and temporarily moving to the sidelines.

We remain positive for oil and equities and bearish for the US dollar. We expect the correction to continue a bit further, but would still be looking for a buy window for oil and equities and sell window for the US dollar.

The externals will remain a short-term price directional mover for the oil complex with the weekly inventory snapshots also playing a major directional role. On the fundamental front we could be in the beginning of a transition phase for US inventories. Refinery utilization rates are pushing lower as the industry moves toward the upcoming refinery maintenance season.

This will reduce refiner crude oil demand and could result in the lengthy inventory destocking pattern moving into a normal seasonal building pattern during the maintenance period. The caution flag is still flying for the oil front. On the financial front global equity markets were mostly lower in the US trading session. The Index decreased with the US market trading mostly lower through Monday’s trading session.

The EMI Index decreased by 0.43 percent with the year to date gain now at 7.1 percent. Eight of the ten bourses in the Index are now in positive territory for 2018. Canada is in the worst performing spot in the Index with Brazil in the top spot with a 10.8 percent gain for the year.

The lower value direction in global equity markets was a negative price driver for the oil complex yesterday. On the currency front the US dollar Index was higher for the day with the Yen/USD and the Euro/USD lower. Overall the currency markets were a negative price driver for the oil complex.