Morning Market Overview

And the volatility continues!

Crude and refined products are once again on the rebound this Friday morning pushing higher across the board. On Wednesday we saw an upside breakout of the technical trading range. Thursday was met with a round of selling that sent the spot WTI crude oil contract back in the linear regression trading channel albeit still near the resistance line.

On the fundamental front this week’s inventory report issued by the EIA yesterday came in biased to the bullish side and it would appear that the market is taking a second look at those numbers along with digesting a pending U.S.-China trade war. The ongoing worry that remains for most market participants is how the continuing growth in total US crude oil production will impact the current inventory destocking pattern as well as OPEC’s resolve with the production cutting accord. Total US inventories are not that far from returning to the 5- year average level for this time of the year which is a major objective of OPEC and its partners in the production accord. If inventories continue to destock prices will remain in the current medium-term uptrend.

On the negative side for oil Thursday was a strong round of selling in the global equity markets on concerns over the US Central Bank’s raising the short-term interest rate yesterday as well as uncertainty over the Facebook data issue along with the US tariff proposal on imported Chinese good. Investors are uncertain and when they are uncertain they start to head to the exits even though corporate earnings are strong, and the US economy is riding a upside wave. That said we view the current reaction as overstated and not the beginning of a sustained downtrend in equities.

Yesterday the externals were a negative for oil prices and contributed to the decline in the oil complex. Equities were lower, and the US dollar was higher versus most major currency pairs. On the financial front global equity markets were mostly lower around the world with the US markets strongly lower.

The EMI Index decreased by 0.64 percent with the year to date gain now at 2.6 percent. Two of the ten bourses in the Index are still in positive territory for 2018. London is in the worst performing spot in the Index with Brazil in the top spot with a 11.5 percent gain for the year. The lower value direction in global equity markets is a negative price driver for the oil complex. On the currency front the US dollar Index was higher for the day with the Yen/USD and the Euro/USD mixed.

Overall the currency markets were a negative price driver for the oil complex.