Crude Oil Price Analysis for August 11, 2017

Crude failed to hold the 50 per barrel level, falling nearly 2% topping at $50.22 earlier in the session. Gains came following an OPEC report, which upped its demand forecast for its oil in 2018 by over 200k barrels per day to 32.42 million barrels per day. At the same time, the cartel revealed that its July production was 32.87 million barrels per day, above its increased 2018 demand prediction. Hard to see how inventory imbalances will be reduced with this strategy if OPEC continues to overproduce.

Technicals

Crude oil generated an outside day, which is generally considered a reversal pattern. An outside day is a higher high and a lower low and a close that is lower than the prior days close and low.  Support is seen near an upward sloping trend line that comes in at 47.65. Resistance is now seen near former support at the 10-day moving average at 49.39. Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses below the 9-day exponential moving average of the spread. The MACD index moved from positive to negative territory confirming the sell signal. The MACD histogram, which is a leading indicator to the MACD index is printing in the red with a downward sloping trajectory which points to lower prices for crude oil. The RSI (relative strength index) which is a momentum oscillator that measures accelerating and decelerating momentum, moved lower with price action reflecting accelerating negative momentum. The current reading of 53, is in the middle of the neutral range.

The reversal in prices came as OPEC confirmed reports that its crude oil production increase last month, reporting a daily rate of 32.869 million barrels, up by 172,600 barrels per day. Global commercial oil stocks in the OECD block stood at 3.033 million barrels, still above the five-year average by 252,000 barrels. Libya, Nigeria, and Saudi Arabia were the main drivers behind the OPEC production increase, with Libya raising its output by 154,300 barrels per day which is by far the biggest increase among the cartel’s members. Nigerian oil production rose by 34,300 barrels per day to 1.748 million barrels per day, while Saudi Arabia’s went up by 31,800 barrels per day to 10.067 million barrels per day.

On the other hand, OPEC reported, based on secondary sources, Iraqi oil output fell by 33,100 barrels per day in July, the biggest decline among OPEC members. The second-largest decline came from Angola, whose production fell by 19,300 barrels per day, and Venezuela’s output dropped by 15,800 barrels per day.

As for non-OPEC supply, the cartel revised its growth forecast for full-2017 to 780,000 barrels per day, down 28,000 barrels per day on the back of slower production growth in the Americas during the second quarter of the year. Total non-OPEC production of crude for this year is seen at 57.77 million barrels per day. The main drivers behind the increase will be the U.S., Canada, and Brazil, OPEC said, adding that their output will compensate for production declines in Mexico, China, and Colombia, among others.

Exports are Reducing Inventories

The decline in imports led to a reduction in crude oil inventories. The EIA reported that U.S. commercial crude oil inventories decreased by 6.5 million barrels from the previous week. Additionally, gasoline inventories increased by 3.4 million barrels last week, but distillate fuel inventories decreased by 1.7 million barrels last week. The EIA added that total commercial petroleum inventories decreased by 4.6 million barrels last week.

Demand for refined products continues to remain solid. The EIA estimates that products demand over the last month averaged over 21.2 million barrels per day, up by 2.3% from the same period last year. Over the last month, gasoline demand averaged about 9.8 million barrels per day, unchanged from the same period last year. Distillate fuel demand averaged over 4.3 million barrels per day over the last month, up by 13.3% from the same period last year.

Canada’s Housing Price Index

Canada’s new housing price index grew 0.2% in June, slowing from the 0.7% month over month gain in May and 0.8% pace in April. A pause in the upward climb of Southern Ontario housing prices tempered the pace of national increase, according to Statistics Canada. But the index accelerated to a 3.9% year over year pace in June from 3.8% year over year in May, leaving the fastest annual growth pace since May of 2008’s +3.6%.