Market Report & Analysis for 6/1/2018 Morning Edition
Morning Market Overview
Prices are moderating this morning with crude and products best described as mixed. Yesterday oil prices rallied strongly after declining for the previous four trading sessions in a row. The rally was a modest round of short covering as prices have declined over $5/bbl since word started circulating that Saudi Arabia and Russia informally agreed to add more oil to the market.
We use the word informally as it must still be discussed and approved at the June 22 OPEC meeting. However, when Saudi Arabia moves on something it is rare if it does not get approved by the broader OPEC membership. That said Kuwait is reportedly is pushing back on Saudi Arabia as concern is growing within the ranks of OPEC members that a lot of effort has gone into eliminating the global surplus of oil and pushing prices to more reasonable levels and they are not ready to throw in the towel and allow yet another production free for all. Needless to say, the June 22 meeting is going to be very interesting.
We expect any agreed increase in production to be very calculated and likely on an as needed basis. Anything short of this type of approach could easily send both WTI and Brent back into the low $60’s very quickly. We do not believe that is Saudi Arabia’s objective currently. Today the externals turned around with a strong rally in US equities as well as a decline in the US dollar both of which were a positive for oil prices. The US dollar Index declined by 0.76 percent while the US Dow recovered all of the previous day’s losses rising over 1.3 percent on the session. Global equity markets were mixed as concerns eased over the financial and political situation evolving in Italy.
The EMI Index was higher after a strong increase in US equities. The EMI Index increased 0.40 percent on the day with the year to date gain at a negative 0.2 percent. Only four of the ten bourses in the Index are still in positive territory for 2018 with China still holding the worst performing spot in the Index with Paris in the top spot with a 2.2 percent gain for the year.
The positive value direction in global equity markets was a negative price driver for the oil complex. On the currency front the US dollar Index is lower on the day with the Yen/USD and the Euro/USD mixed. Overall the currency markets were a positive price driver for the oil complex.