Market Report & Analysis for 6/20/2018 Morning Edition

Morning Market Overview

As expected oil trading was very volatile Monday with the complex starting in the overnight trading session negative on concerns of an increase in production by OPEC only to recover in the early US trading hours.

The recovery was driven by a combination of talk of a much smaller increase in production than what was floating around the media airwaves late last week coupled with an evolving geopolitical event in Libya that is already impeding production by around 250,000 bpd. Libya experienced damage to storage facilities resulting in a reduction in crude oil production that could grow if fighting between to rival tribal area continues. This is an evolving event that we will have to watch closely. It could also be yet another geopolitical event that Saudi Arabia and Russia may use to push forth their goal of increasing production to the rest of the OPEC members at the meeting this coming Friday.

In addition to the potential for an increase in OPEC production is the potential of looming tariffs between the US and China which could result in tariffs on US crude oil sold to China. First, we are of the view that all of the tariff talk between the US and China is simply a negotiating point at this time and even if there was a tariff on US crude oil to China it would not likely change the material balance of oil exports from the US as US oil would just go elsewhere displacing barrels that would then go to China.

On the financial front global equity markets were mostly lower as market players remain uneasy over all the US and China tariff discussions. The EMI Index was lower with another strong decline in Brazil and Germany. The EMI Index was lower by 0.46 percent on the day with the year to date loss at 2.6 percent. Six of the ten bourses in the Index are still in positive territory for 2018 with China still in the worst performing spot in the Index with Paris in the top spot with a 2.6 percent gain for the year. The negative 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 higher. Overall the currency markets were a positive price driver for the oil complex.