Crude Oil Price Analysis for April 19, 2017

WTI crude touched one-week lows of 52.16 into the N.Y. open, down from $52.75 highs seen after the N.Y. close on Monday. The move lower comes as Saudi Arabia says it is too soon to talk about extending the OPEC/NOPEC production cuts set to roll off at the end of June. In addition, the EIA expects U.S. shale production to rise by 125k barrels per day by the end of May, further offsetting OPEC production cuts. U.S. rig counts, as reported by Baker-Hughes on Thursday make the case that U.S. output remains on the rise. Key going forward will be whether or not OPEC will agree to extend its production cuts beyond June.  The dollar moved lower as risk aversion drove U.S. yields lower and softer than expected economic data did little to buoy the dollar. With WTI prices quoted in U.S. dollar, a softer dollar makes crude oil less expensive in other currencies.

Technical

Crude oil prices rebounded from their lows of the session, after initially pushing through support near the 10-day moving average at 52.42.  Risk aversion hit oil prices early in the U.S. trading session, but prices were able to rebound late in the day.  Resistance on the daily chart is seen near the April highs at 53.76.  Prices are forming a head and shoulder reversal pattern, and the current action is the formation of a right shoulder. If prices moves lower and break through the neckline at 48 per barrel, they could continue to fall back to the July lows at 44.

Momentum has turned neutral as the MACD (moving average convergence divergence) index prints in the black, with a flat trajectory which reflects consolidation. The RSI has leveled off, printing a reading of 59, which is in the middle of the neutral range and also reflects consolidation.

The hourly chart shows that prices are consolidating but are below last week’s levels, where there was a significant draw reported by the American Petroleum Institute on total petroleum inventories.  Support is seen near the intra-day lows at 51.50.  Hourly momentum is also neutral as the MACD prints near the zero-index level with a flat trajectory which reflects consolidation.

Risk aversion, which is driven by geopolitics is forcing yields lower along with weighing on the greenback and driving the yen to session highs of 108.46. In addition to mixed signals from economic data there is upcoming political risks in Europe.

Political Instability Could Increase in the Middle East

The retaliatory attacks in Syria, could continue to generate volatility. Assad’s allies, Russia, Iran and Hezbollah, are openly confronting the U.S. and its allies. In a statement made by the joint command center, which is made up of Russia, Iran and militias supporting Syrian President Bashar al-Assad, the U.S. has been warned that the missile attack crossed “red lines”. The pro-Assad group reiterated that any new aggression will be met by military force.

The Market Shrugs Off George’s Comments

Fed’s George believes balance sheet adjustments should begin this year, according to her prepared remarks “On the Path of Monetary Policy Normalization,” supporting the general FOMC consensus that shrinkage should start later this year or early 2018. She thinks the adjustments need to be “gradual and smooth,” however, to minimize risks, and once it begins, “it should continue without reconsideration at each subsequent FOMC meeting.

U.S. Industrial Production Expanded in March

U.S. industrial production increased 0.5% in March, in line with expectations, driven by an 8.6% rise in utility output that was a function of weather-driven heating which was cause by winter storms.  The rise in utility output was the largest production on record and was assisted by a surge in heating demand.  Expectations were for a 0.5% rise.

The IMF Lifted Its Growth Rate

The IMF update its World Economic Outlook, forecasting a growth rate in 2017 of 3.5% compared with 3.1% in 2016. GDP for United States economy was forecasted to increase to 2.3% in 2017 and 2.5% next year from 1.6% in 2016. The IMF now forecast that developing nations with growth at a 4.5% rate in 2017 and increase to 4.8% in 2018, which is an increase from the 4.1% growth rate in 2016.

Canada Data Remain Solid

Canada’s existing home sales grew 1.1% in March compared to February on a seasonally adjusted basis. The national average price grew 8.2% year over year in March, with prices in Toronto expanding at a 29% year over year clip. Toronto’s home price grew 6.2% compared to February.