A sense of caution seems to be the theme for the financial markets as trading gets underway for the week, with investors braced and preparing for an incredibly busy week packed with both crucial economic reports and major risk events.
OPEC and non-OPEC leaders are wrapping up their meeting in St. Petersburg Russia and it looks like it has yielded some positive results. Not only did Nigeria agree to cap their oil production output at 1.8 million barrels a day, the Saudi Oil Minister Khalid al Falih, speaking after the meeting broke up, seemed optimistic that the path they were on would eventually get global supply back in balance.
For oil and the markets, Russia is all the rage. There is the big OPEC/non-OPEC pow-wow in Russia and reports that Special Prosecutor Robert Mueller is opening an investigation into President Donald Trump's business transactions with Russia one day after the President said that that would be a red-line for him.
Major oil draw and a Saudi Arabian coup? The Energy Information Administration (EIA) reported another major 4.727-million-barrel drawdown in crude supply even as U.S. shale production rebounded last week causing U.S. oil production to rise to 9.43 million barrels per day, up from 9.4 million barrels which puts it at a two-year high.
Saudi Arabia was testing the waters by sending a signal that the kingdom might cut crude exports by 1 million barrels to shock and awe oil out of this sideways trading range ahead of Monday’s OPEC technical meeting. While the market did respond positively to the news, there was still some skepticism that the Saudis would make that happen.
The fact that Sterling sharply depreciated across the board on Tuesday, after British inflation rates unexpectedly dropped to 2.6% in June, continues to highlight how the currency has become increasingly sensitive to monetary policy speculation.
Crude oil prices are trying to recover on a weak dollar after selling off yesterday on the August oil future contract expiration. Also on a prediction by the Energy Information Administration (EIA) that US oil production would rise by 113,000 barrels a day to 5.585 million barrels a day in August from July, even as they overestimated Junes production by a wide margin.
Crude oil prices have been creeping higher four days in a row as OPEC plans an “emergency technical meeting” July 24. The move is tentative as the market is still buying into the invincibility of shale oil production and this myth that the global oil market is not balancing. The International Energy Agency tried to feed into that myth by suggesting that OPEC compliance is slipping, offsetting what is a surge in global oil demand.
After an eventful day in the markets yesterday, U.S. stocks are higher, but off their best levels; gold is also up while crude oil has given up its earlier gains. In FX, the U.S. dollar is mostly weaker but not as much as the euro, while the British pound is up slightly and the Canadian dollar is significantly higher.