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Crude Oil Price Analysis for April 27, 2017

By:
David Becker
Published: Apr 26, 2017, 18:23 UTC

Crude oil prices whipsawed on Wednesday, first dropping and then climbing, following the larger than expected draw in crude oil inventories and the larger

Crude Oil Price Analysis for April 27, 2017

Crude oil prices whipsawed on Wednesday, first dropping and then climbing, following the larger than expected draw in crude oil inventories and the larger than expected build in heating oil, and gasoline inventories reported by the Department of Energy. Prices continue to form a head and shoulder reversal pattern, and a break of the neckline which is trend line support could generate a long liquidation.  Demand for distillates remain robust, but gasoline demand continues to disappoint.

Technicals

Oil prices reversed the downtrend, making a higher low and a higher high. Unfortunately for bulls, prices settled well off their highs of the trading session. 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 51.28.

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 shows that prices are forming a bull flag pattern which is a continuation pattern where a pause refreshes.  Support is seen near the 10-hour moving average near 49.55. Resistance is seen near the hourly highs on Wednesday at 50.25, which coincides with Tuesday’s highs. Prices appear to be forming a bottom on an hourly basis as momentum remains positive as the MACD is printing in the black with an upward sloping trajectory which points to higher crude oil prices.

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Production is Strong and Imports Continue to Arrive in the U.S.

While U.S. production moderately increased during the past week, imports appear to have return to U.S. borders. U.S. crude oil imports averaged over 8.9 million barrels per day last week, up by 1.1 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.1 million barrels per day, 4.9% above the same four-week period last year.

Refiners where drawing down crude and generating products which created a large draw in crude oil and an even larger build in products. Refiners operated at higher rates, which helped products build. According to the Energy Information Administration, U.S. crude oil refinery inputs averaged 17.3 million barrels per day during the week ending April 21, 2017, 347,000 barrels per day more than the previous week’s average. Refineries operated at 94.1% of their operable capacity last week.

Crude Oil Stocks Decline

U.S. commercial crude oil inventories decreased by 3.6 million barrels from the previous week. Expectations were for a 1.5-million-barrel decline. Gasoline inventories increased by 3.4 million barrels last week compared to expectation of a 1-million-barrel decline. Distillate fuel inventories increased by 2.7 million barrels last week and analysts also expected a small decline. Total commercial petroleum inventories increased by 6.6 million barrels last week.

Demand is Lower

Demand in aggregate is lower. Total product demand over the last four-week period averaged over 19.5 million barrels per day, down by 2.2% from the same period last year. During the past month gasoline demand averaged over 9.2 million barrels per day, down by 1.8% from the same period last year. Distillate fuel demand averaged over 4.1 million barrels per day over the last four weeks, up by 4.5% from the same period last year.

The report somewhat offset the builds that were reported by the American Petroleum Institute on Tuesday.  The API estimated that crude oil inventories increased by 897,000 barrels compared to analyst expectations that markets would see a crude oil draw of 1.6 million barrels. Additionally, the API said that gasoline inventories increased by 4.4-million-barrels following last week’s build of 1.374 million barrels, while analysts were expecting a 2.2-million-barrel draw for the fuel instead.

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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