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Crude Oil Price Analysis for April 26, 2017

By:
David Becker
Published: Apr 25, 2017, 19:30 UTC

Oil prices moved higher on Tuesday, ahead of Wednesday’s inventory report from the Energy Information Administration.  Seemingly ever increasing U.S.

Crude Oil

Oil prices moved higher on Tuesday, ahead of Wednesday’s inventory report from the Energy Information Administration.  Seemingly ever increasing U.S. shale production, along with recent talk from Russia, which has said it will increase its own output in H2 of this year if OPEC-NOPEC production cuts are not extended beyond June, has weighed on Prices. Inventories in the United States remain near multi-year highs as cuts from OPEC have yet to rebalance petroleum inventories.

Technicals

Oil prices continue to trade in a downtrend, as prices made a lower low a lower high and a lower close. The price pattern continues to fill out the head and shoulder pattern which is a reversal pattern, that comes at the end of an uptrend.  Currently prices are forming the right shoulder and are heading toward the neckline.  A break of the 48 handle would set in motion a move that initially would stop at the 44 handle and then possible the 37 level.  Resistance on a daily chart of crude oil is seen near the 10-day moving average at 51.69.

Momentum on crude oil prices is negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal. The index is printing in the red with a downward sloping trajectory which points to accelerating negative momentum and eventually lower prices.

The RSI (relative strength index) made a button hook pattern, which reflects some consolidation from the negative momentum it has seen over the past few trading sessions. The current print on the RSI of 38 is on the lower end of the neutral range above the 30 oversold trigger level.

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The hourly chart of crude oil prices shows that WTI is attempting to make a bottom, near support at the daily lows at 48.87.  Prices seem to have broken through a short term hourly trend line that comes in near the 10-hour moving average at 49.29, which is seen as short term support.  Resistance is seen near the 50.22 level which is Monday’s highs on crude oil. This coincides with a downward sloping trend line.

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Hourly momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the spread (the 12-hour moving average minus the 26-hour moving average) crosses above the 9-hour moving average of the spread.  The index moved from negative to positive territory confirming the crossover buy signal.  The hourly RSI surged higher with price action reflecting accelerating positive momentum, and the current reading of 60 is on the upper end of the neutral range, below the overbought trigger level of 70.

Libya is Poised to Start Production at Sharara

Libya is set to begin production again at its Sharara oil field which could put additional pressure on oil prices. Libya’s biggest oil field, Sharara, which has been offline for most of the past month, is set to re-start after the Petroleum Facilities Guard  reached an agreement with protesters who have repeatedly shut down the pipelines that pump oil into the field.  The field produces approximately 200K barrels per day.

At the end of March, unnamed armed factions were said to have blocked production at the Sharara and Wafa fields in western Libya, cutting the country’s total output by 252,000 barrels per day. Sharara alone produced 220,000 bpd before the shutdown, accounting for a large part of Libya’s overall 700,000 barrel per day production until that point.

Iraq Could Bring More Crude Online in 2018

If OPEC is unable to rebalance inventories in 2017, they might see prices drop significantly in 2018. Iraq could bring additional production online as it has started work on the third and final phase of the Halfaya oil field expansion, with the goal to double production capacity next year. Production capacity at the Halfaya oil field is set to double to 400,000 barrels a day in 2018.

Iraq is OPEC’s second-biggest producer of crude oil behind Saudi Arabia, and it plans to boost its crude oil production by 600,000 barrels per day in 2018 to 5 million barrels per day by the end of this year, regardless of its participation in OPEC’s production cut deal.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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