Oil market participants have moved into a risk-off mode as the geopolitical tensions ease, supply from Libya starts to increase all being offset partially by the ongoing QE program in the U.S. but negatively impacted by the U.S. government shutdown.
With both Russia and Saudi Arabia (two largest oil producers in the world) both producing at very high levels for September, oil seems to be heading for a period of oversupply and thus inventory replenishment as we saw in last night’s API data.
Oil futures markets are trading higher in a modest round of short covering this morning after what was viewed as a bit of a disappointment at the UN yesterday. Rouhani’s speech to the UN was a disappointment as he did not offer anything new.
The November Brent/WTI spread has continued to narrow declining for the last two sessions in a row. As the supply issues that I have been discussing for weeks start to resolve themselves the spread will resume its path toward parity.
Syria remains in the forefront as the main risk asset market catalyst. They are reacting as normal when these types of events are imminent. The U.S. dollar is stronger vs. most currencies and oil prices are higher and holding onto to their gains.