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.
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.
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.
While the rig counts rise, it is slowing the profits for shale operators and the cost of production is going up. Baker Hughes reported that drillers added just two oil rigs and during the last four weeks rig additions were the lowest since November. Smaller shale firms are feeling the pain and the economics in the shale patch will cause the reporting agencies to once again lower the U.S. oil production forecast.The Energy Department on Tuesday lowered its forecast of U.S. oil production next year by 1% in what may be the beginning of a trend.
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.
Despite a record drawdown from U.S. oil inventories and the fact that Saudi exports to the United States are at a 30-year low, the International Energy Agency is backtracking its prediction of a global oil market rebalancing because of an increase in OPEC oil production.
Crude oil prices are getting a wake-up call after a lowering of the U.S. oil production outlook--a report of a major drop in U.S. oil supply and a warning by S&P to oil majors cut to back more and reduce debt levels or face downgrades.
It appears that equity markets have taken inspiration from the performance of the financial market at the conclusion of last week, with Asian stocks trading broadly higher and European shares looking positive at the time of writing.