Market Report & Analysis for 5/9/2018 Morning Edition
Morning Market Overview
At first look the oil and refined product complex is giving back some of yesterday’s gain. Oil prices rose for the fourth trading session in a row Monday with the spot June WTI contract trading above the $70/bbl level on an intraday basis (but ending below the $70/bbl level) with the spot Brent contract is trading around $76/bbl.
The market pushed strongly higher primarily driven by evolving geopolitical risk coming from the Middle East as well as in Venezuela. The fundamentals were mildly bearish in last week’s round of reports but may turn back to more supportive this week.
The main geopolitical event revolves around whether the US will renew the Iranian nuclear deal or opt out and re-impose sanction on Iran. The current odds favor the US leaving the deal especially after the Israeli’s revealed they discovered Iran was lying about their nuclear program prior to signing the original deal in 2015.
If the US does leave the deal than it will come down to what the sanctions look like. Will they be as strong as the pre-deal sanctions and will crude oil exports from Iran be hit strongly? Since the nuclear deal was signed Iranian exports have increased by around 1 million bpd or so. Market participants will have to digest many questions if the US opts out.
Another question that will quickly come to the forefront… will OPEC make up any lost volume from Iran or simply let prices rise further? Oil prices were up by over a $1/bbl until a news snippet hit the media airwaves that President Trump indicated he would make his announcement on the Iran deal this afternoon at 2 PM.
This tweet sent oil prices down quickly (as well as US equity markets). It was a round of profit taking selling as market participants started to square some of their positions prior to the announcement. In addition to the Middle East the Venezuelan situation got a bit murkier as ConocoPhillips moved to take Venezuela’s Caribbean assets to enforce a $2 billion arbitration award (Reuters). If Conoco is successful it could further impact Venezuela’s falling production and put additional strain on the economic crisis that seems to be deteriorating monthly.
