Market Report & Analysis for 2/7/2018 Morning Edition
Morning Market Overview
Markets remain very unsettled this morning with crude and refined products getting caught up with equities in a continued push lower. The oil complex traded on the defensive throughout Monday’s trading session as equities were once again hit with a strong round of selling while the US Dollar was higher versus most currency pairs.
Inflation is the talk running around the markets which if it turns out to be the issue would result in Central Banks possibly raising short term interest rates more quickly than previously expected. We remain of the view that what has been going on in most asset markets since the middle of last week is more about a correction rather than a structural and directional change in the equity and oil complex. Oil and equities were very overbought.
Some participants have started to take some profits off the table. We expect the markets will stabilize in the short term and at that point, there will be ample buying opportunities to reset longs. From a fundamental perspective, the next major market driver could be the start of the upcoming refinery maintenance season. Turnarounds are starting to slowly get underway with the total US refinery utilization rates below the 90 percent level in last week’s EIA inventory snapshot.
During turnaround refiner demand for crude oil will go down and raise the possibility that the ongoing inventory destocking pattern may change back to a building pattern especially if the Brent/WTI spread continues to narrow. The Brent/WTI spread is a macro indicator as to the economics of exporting US crude oil. The wider the differential the more competitive it is to export US grades internationally. Since peaking toward the end of last year the spread has now narrowed by close to $3/bbl and with the April Brent/WTI spread currently trading around $3.80/bbl.
Although the economics still work for exporting US crudes the level is not nearly as interesting as it was around a month or so ago.