Market Report & Analysis for 5/15/2018 Morning Edition

Morning Market Overview

The main feature last week was the announcement by the US that they were pulling out of the Iranian nuclear accord. As we have discussed in detail the impact on crude oil exports from Iran remains an unknown with some projections suggesting a loss of around 1 million bpd to some projecting minimal if any interruption in supply as we believe negotiations will lead to modifications to the deal and the US will once again participate.

If our view is wrong and oil is interrupted from Iran we believe OPEC (Saudi Arabia in particular) and non-OPEC countries that have been curtailing production will quickly increase production as many are anxious to regain market share they have lost to US producers over the last several years. Iran aside there are still several geopolitical risk points that will provide support for oil prices in the coming weeks.

The evolving conflict between Iran and Israel, the ongoing proxy war between Iran and Saudi Arabia in Yemen and the tremendous deterioration in the Venezuelan economy with further exposure to crude oil production declines in the coming months especially with Conoco winning the arbitration case recently. 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 10 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 132 or 18.5 percent year over year. Oil rigs increased with US crude oil production increasing 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 15.9 percent above where it was for the same week a year ago. This week’s production came in at 10.703 million bpd.