Market Report & Analysis for 2/5/2019 Morning Edition
Morning Market Overview
The rally in the oil complex continued Friday with the spot Nymex WTI contract breaking out of the sideways trading pattern to the upside on the evolving situation in Venezuela and another strong US economic data point suggesting that recession is not imminent. Crude oil prices increased around 3 percent with the RBOB contract surging over 4 percent. This was the fourth weekly gain in prices over the last five weeks as the uptrend that began on Dec 24 remains in play.
On the economic front the US saw an increase in jobs for the 100th straight month in a row with non-farm payrolls increasing over 300,000 and exceeding all the market expectations. Despite media reports to the contrary the US economy is still robust with no signs of recession and thus supportive for oil demand growth.
On the trade front the China trade delegation said the latest round of talks held last week with the US made “important progress” according to the state news agency Xinhua. A solution to the trade dispute between the US and China would certainly serve as a catalyst for both economies as well as supportive for demand for oil and the broader commodity complex.
In another sign that the negotiations are progressing China followed through on a pledge to increase soybean purchases with orders of at least 1 million tons (Reuters). On the supply side uncertainty remains elevated as the US sanctions on Venezuela is very likely to result in a reduction of oil flow from Venezuela. Several buyers of Venezuelan oil have started to back away due to the sanctions even though the US Treasury Department will allow US refiners to buy oil from Venezuela until April 28. The combination of OPEC over-cutting production, the evolving situation in Venezuela and drilling rigs deployed to the US oil sector starting to peak have all added upside momentum to the complex.
Last week the latest Baker Hughes data hit the media airwaves reporting the number of rigs deployed to the US oil sector decreased by 14 rigs on the week after increasing during the previous week. Total US crude oil production is about 20 percent above where it was for the same week a year ago. This week’s production came in at 11.889 million bpd.
