Market Report & Analysis for 5/21/2019 Morning Edition
Morning Market Overview
The market is mixed heading into a fresh trading week with no clear direction established as of this writing. NYMEX crude futures nearest delivery settled lower on Friday, as market participants assess a potential increase in production from Organization of Petroleum Exporting Countries and allied producers amid tightening supply-demand disposition. The down session comes ahead of the closely watched OPEC/Non-OPEC monitoring committee meeting scheduled this weekend, with the group set to debate an extension of production cut agreement.
The market remains uncertain whether Saudi Arabia and other producers will continue output curbs beyond June as unplanned production losses from Iran and Venezuela continue to tighten the global oil market. The Middle East remained in the center of geopolitical tensions this week after Saudi Arabia accused Iran of ordering attacks on its oil infrastructure. Saudi Arabia launched a retaliatory strike against Iran-backed Houthi rebels in Yemen hours after its main cross-country oil pipeline was hit by explosive drones. The United States reportedly pulled non-emergency personnel from its embassy in Iraq, citing threats from Iranian-backed forces.
Domestically, Baker Hughes reported the number of active oil rigs in the U.S. declined for the second straight week, down three to 802 as of May 17, the lowest level since late March 2018. The lower rig count is aligned with declining U.S. production, which moved 100,000 bpd lower to 12.1 million bpd last week, according to Energy Information Administration.
The rig count is technically an early indicator of future output, as U.S. shale producers have cut spending on new drilling, and focus on earnings growth instead of increased output. The spot month West Texas Intermediate crude futures contract was boosted mid-week by the bullish domestic production figure reported by the EIA, though data also detailed sizable 5.4 million bpd build in U.S. crude stockpiles.
EIA also showed gasoline inventories fell to the lowest level in six months in the week ended May 10, down 1.1 million bpd on the week and nearly four time above the market expectations. In economic news, consumer sentiment index in the U.S. 5.3% to 102.4 in May, well above market expectations of 97.5.
The University of Michigan said on Friday latest sentiment data was the highest reading in nearly 15 years, fueled by the growing consumer confidence over the economy’s outlook. U.S. equities pared losses on strong sentiment data while also finding support from the White House decision to remove tariffs on steel and aluminum from Canada and Mexico also proved supportive for markets.
