Morning Market Overview

Oil prices started the trading session Thursday strongly higher in a continuation to the gains after Wednesday’s bullish EIA inventory snapshot report but was unable to hold the strong gains by the end of the day. However, even talk about the upcoming meeting this weekend between Saudi Arabia and Russia was not enough to offset the negativity coming from the US equity complex along with a rising US dollar versus most major currencies. Market participants switched back to focusing on the externals and ignoring the oil fundamental positives that have been hitting the media airwaves this week.

Short and medium-term fundamentals remain supportive as the global oil glut is just about gone as inventories in many locations are either at or below the so called normal or five-year average including the US. This has been the main objective/measure of the success of the OPEC/select non-OPEC production cutting accord. By almost all counts the strategy can be labeled a success. The market attention will now be shifting to how will OPEC and its partners maintain the balances, so the overhang does once again overtake the market as there is no sign that US crude oil producers are going to do anything other than continue to increase production.

This topic is likely to be on the top of the list of discussions at the Saudi Arabian/Russian meeting this weekend in Saudi Arabia. The meeting is also going to set the tone for the rest of the participants as the group heads toward the next regularly scheduled OPEC group meeting in June. Oil prices will remain volatile going forward as the externals will continue to trade in a very volatile trading pattern. That said we remain medium term bullish and view the oil complex as a market to buy the dips (which more than likely will be driven by the externals) until which time that there is a definitive change in the global supply and demand balances.

On the financial front global equity markets were mixed on Thursday. The EMI Index ended the trading day around the unchanged level with a modest decline in US equities. The EMI Index increased 0.01 percent on the day with the year to date gain is at 3.6 percent. Three of the ten bourses in the Index remain in positive territory for 2018 with China now holding the worst performing spot in the Index with Brazil in the top spot with an 11.9 percent gain for the year. The marginally positive value direction in global equity markets Thursday was a neutral price driver for the oil complex.

On the currency front the US dollar Index traded higher for the day with the Yen/USD and the Euro/USD lower. Overall the currency markets were a negative price driver for the oil complex.