Morning Market Overview

Except for ULSD the rest of the oil complex was able to add value Thursday even after a mixed to slightly bearish weekly EIA oil inventory snapshot. Total US combined stocks of crude oil and refined products built modestly for the week ending Dec 29 but are still 134.6 million barrels below the peak hit in February of 2017.

Based on yesterday’s data point, a slightly disappointing day for the bulls, it has not structurally changed the fact that the inventory situation is still in a medium-term destocking pattern. With global inventories still in a destocking pattern, geopolitical events around the globe are creating a higher level of concern and uncertainty. The evolving protests in Iran have the market watching closely in case the protests spread to the oil region and possibly interrupt the flow of oil exports from Iran.

The market has built in a small risk premium around this possibility even though there are no signs of any oil flow issues in Iran. On the external front, both surging global equity markets and a falling US dollar (versus most currency pairs) are positive for oil prices. Rising equity market suggests an expanding economy which in turn is likely to result in oil consumption growing more than projected.

Currently, all the events that are evolving in the global oil markets are providing additional support to OPEC and their endeavor to push global inventories back to normal or the five-year average level along with their committed production cutting accord. In fact, the latter part of 2017 OPEC’s compliance level was around 120 percent or unprecedented conformity compared to historical performance to cuts in years past.

All signs continue to suggest that global oil markets are more likely than not to return to a normal operating level which is supportive for prices.