Morning Market Overview

Last week was a mixed picture for oil traders as the short-term fundamentals were biased to the bearish side along with a mixed set of signals coming from the financial markets while the geopolitical risk continued to evolve in the Middle East. When the dust settled, the oil complex moved higher on the week except for the spot Nymex WTI contract.

On the fundamental front, the EIA reported a surprise build in crude oil inventories in the US and in Cushing. In addition, total US combined stocks of crude oil and refined products increased slightly on the week breaking from the medium-term destocking trend. This raised a caution flag in many trader’s views and something we will have to pay close attention to in the coming weeks.

Our model is forecasting a return to a destocking pattern in this coming week’s round of inventory snapshots. The geopolitical risk continued to keep the short side oil traders on the sidelines while garnering additional long side traders and investors moving into the oil complex. Last week the concern was over whether the US will drop the Iranian nuclear deal and re-install stringent sanctions on Iran once again. Some analysts suggest a new round of sanctions by the US could result in Iranian crude oil production/exports declining by up to 1 million bpd. In addition, the tensions in the region will also be elevated which could also cause additional supply disruptions.

This issue will likely become clearer over the next several weeks. Friday afternoon in the latest Baker Hughes data hit the media airwaves reporting the number of rigs deployed to the US oil sector increased on the week (by 5 rigs) after increasing during the previous week.

The latest rig data still supports the overall uptrend in the US oil rig count remains. Total rigs deployed to the oil sector are higher by 128 or 18.4 percent year over year. Oil rigs increased with US crude oil production increased last week. US crude oil production continues in an uptrend setting new production records on a weekly basis. Total US crude oil production is about 15.1 percent above where it was for the same week a year ago. This week’s production came in at 10.586 million bpd.