Morning Market Overview
Despite the significant volatility and tremendous sell-off in US and global equities Tuesday the oil complex was able to remain mostly in positive territory in the pre-API inventory release session. After a euphoric post G20 weekend equities surged out of the box on Sunday night and ended Monday’s session strongly higher.
As the dust settled the market became much more uncertain as to what the outcome will be from the ongoing negotiations between China and the US as well as what the condition of the economy will be going forward. Yesterday the market gave back all of Monday’s equity gains and then some. Equities are casting a negative cloud on oil prices as falling equities are viewed as a leading indicator to the economy starting to underperform and thus projecting oil demand growth to also slow. This said the main event for oil will be the very important OPEC and non-OPEC meetings which get underway in Vienna on Thursday.
It is not a given that an oil production cut will be agreed to nor is it clear that if a cut is agreed what the cut threshold will be. OPEC has a long history of playing a bit of smoke and mirrors in situations like this. We are not saying that is going to happen but be careful of just the headlines that start to emerge from Vienna and dig deeper into the details. Our view is there will be a significant cut of at least 1 million bpd or more. Tuesday afternoon the API started the weekly inventory report cycle (EIA data delayed one day due to President Bush funeral today) with a surprise build in crude oil and larger than expected builds in distillate fuel inventories and in gasoline stocks. Total combined inventories of crude oil and products were strongly higher on the week.
Overall the market lost ground after the API inventory report release hit the media airwaves. On the financial front global equity markets were strongly lower as uncertain again moved to the forefront regarding the US/China trade relationship with the EMI Index decreasing on the day. The EMI Index was lower by 1.30 percent for the day with the year to date gain at 2.3 percent. Only two of the ten bourses in the Index are in positive territory for 2018 with China holding the worst performing spot in the Index with Brazil in the top spot with a 16.2 percent gain for the year. The lower value direction in global equity markets today was a negative price driver for the oil complex.
On the currency front the US dollar Index was lower for the day with the Yen/USD and the Euro/USD mixed. Overall the currency markets were a positive price driver for the oil complex last week.