Market Report & Analysis for 10/5/2018 Morning Edition

Morning Market Overview

Wednesday’s weekly EIA oil fundamental snapshot was overall bearish as total combined stocks of crude oil and refined products built strongly on the week and are now 67.7 million bbls above the low hit in early April of this year. Since then total US stocks have been in a choppy building pattern and are also above the five-year average or the objective/level set by OPEC when they originally embarked on their production cutting accord. Despite Iranian production already in decline (estimates of loss of production around 800,000 bpd) US production is robust and US stocks are in a building pattern.

The market sold off for a short time once the EIA data was released but quickly reversed and moved strongly higher on the day as market participants are more concerned over a further deterioration in Iranian production than the gradual build seen in US inventories. The market remains in a mode of buying any dips as the time is nearing (Nov 4) when the US plans to add a new round of sanctions on Iran.

The market also discounted Saudi’s comments today (Reuters) indicating that they raised output to 10.7 million bpd in October and would pump more in November. The market is entering an overbought mode with a moving higher only mentality. This is the type of market environment that is becoming more and more susceptible to a strong round of profit taking selling at any time. We strongly suggest using trailing stops for any spec long positions. On the financial front global equity markets were mostly higher.

The EMI Index was higher for seven of the ten bourses in the Index. The EMI Index increased by 0.66 percent on the day mainly driven by another huge increase in Brazilian stocks of close to 1.7 percent for the day. The year to gain is now at 3.1 percent. Five of the ten bourses in the Index are still in positive territory for 2018 with China still in the worst performing spot in the Index with Brazil now in the top spot with a 9 percent gain for the year. The positive value direction in global equity markets was a positive price driver for the oil complex. On the currency front the US dollar Index is higher on the day with the Yen/USD and the Euro/USD lower. Overall the currency markets were a negative for the oil complex.