Market Report & Analysis for 6/21/2018 Morning Edition
Morning Market Overview
In the pre-inventory report cycle Tuesday oil prices were under pressure but were able to end that part of the session off the intraday lows of the day. There were several drivers impacting oil trading coming from both the bearish and bullish side of the equation. In the end the bearish catalysts overtook the bullish news.
Starting on the bearish side the two main negative price drivers are the potential for a prolonged and deep trade war between China and the US. We still do not think a full-blown trade war will occur as both countries have more to lose than gain. That said if there is a full-scale trade war there will be tariffs on US crude oil exports (among other things) from the US. But that is not the main negative as oil exports will just go somewhere else instead of China. The impact on oil would likely be more from the demand side of the equation if China’s economy is negatively impacted by a trade war as it will result in a reduction in oil consumption. The other main negative is the potential increase in production from OPEC and Russia. The meeting is set for this Friday.
If production is increased that is simply a negative short to medium term even if it is worded very carefully as the market will view the decision as bearish for oil prices. On the bullish side, which was mostly ignored by the market yesterday is the quickly evolving geopolitical situation in Libya that has already resulted in around a 400,000-bpd reduction in exports from this country. The situation in Libya is added to the ongoing reduction in supply from Venezuela whose economy seems to be spiraling downward.
In addition, the proxy war between Saudi Arabia and Iran in Yemen continues to expose that part of the Middle East region oil flow. 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 even with strong gain in Brazil. The EMI Index was lower by 0.18 percent on the day with the year to date loss at 3 percent. Three 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 Australia in the top spot with a 2.4 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 higher on the day with the Yen/USD and the Euro/USD mixed. Overall the currency markets were a negative price driver for the oil complex.
