Market Report & Analysis for 12/18/2018 Morning Edition

Morning Market Overview

Last week was the first full week since the new OPEC production cutting accord, the Canadian cuts and force majeure in Libya and yet prices declined modestly on the week by around 2.7 percent for the spot WTI contract (spot Brent down 2.25 percent).

On the week the fundamentals were mixed with the EIA and OPEC projecting global inventories not moving into a destocking pattern until well into Q4 while the IEA suggested demand will outstrip supply and send inventories into a destocking pattern sometime during Q2. The weekly inventory snapshot in the US showed the second weekly decline in total US combined crude oil and refined products stocks.

Overall, the fundamentals were neutral to marginally positive. However, the main driver last week was the ongoing turmoil evolving in the financial markets. Global equities declined across the board with the US dollar index gaining on the week. Both externals were a negative for oil and the broader commodity complex. Trade war fears and a potential slowing global economy were the main fear factors permeating around the financial complex.

On Friday economic data from both China and Europe were indicative of a slowing while US data was more positive. One of the main events that is likely to impact the short-term direction of equities, currencies and commodities (including oil) will be the US Central Bank’s decision whether to raise short term interest rates again when they meet. The announcement will come mid-day on Wednesday and market participants will be not only looking at the headline decision by the Fed but will likely parse every sentence from the meeting outcome to determine what the Fed’s plans may be for 2019.

\Expect another week of above normal volatility as many market participants in all markets begin to square up their books and wind down for the upcoming Christmas holidays.