In spite of the latest forecast from the International Energy Agency (IEA) yesterday suggesting that the global crude oil market is already rebalancing the market has been in a retracement mode since late last week. A combination of growing concerns over a leave the European Union vote next week in the UK along with the short-term oil fundamentals showing another build as the weekly inventory cycle kicked off late yesterday have shaken the confidence of some of the oil bulls.
Both the spot West Texas Intermediate (WTI) and Brent price are now trading below the key $50 per barrel level after spending about a week or so above this level. Although the overall market sentiment remains longer term biased to the upside, the upward move has lost some momentum as market participants look toward a return of some of the shut-in Canadian production along with the American Petroleum Institute (API) (see below for more details) reporting a surprise build in total crude oil stocks as well as in Cushing, Oklahoma.
Later this morning the Energy Information Administration (EIA) will release their weekly inventory snapshot and if it is bearish as was the API data the oil complex is likely to be hit with another round of selling. The current move lower, which stated last week is still within the pattern of down moves seen since the uptrend began in the middle of Q1. That said the technicals are starting to show signs of breaking down, which could result in a deeper move to the downside than many in the market have been originally expecting.
On the external front global equities have been under pressure all week but were mixed over the last 24 hours. The U.S. dollar moved strongly higher yesterday but is currently in a light round of profit taking selling as the vote in the UK to either stay or leave the EU is set for June 23.
The latest polls still favor leaving the EU. The financial and commodity trader/investors are not comfortable with the uncertainty if a leave vote is pass and as such it seems that money has been starting to flow to the so-called safe haven U.S. dollar until the dust settles and the voting is concluded. The strong US dollar versus most currency pairs is a negative price directional driver for the oil complex.
The equity front markets are lower for the week so far with the index once again moving into negative territory for the year-to-date. The broader EMI Global Equity Index decreased by 0.58%. The EMI Global Equity Index is now in negative territory for 2016 by 0.6% or the worst level since early March. Seven of the 10 bourses in the index remain in negative territory for 2016 with China holding the bottom spot in the index with Brazil on top of the leader board. Global equities are a negative price directional driver for the oil complex so far for this week.