Crude Oil Price Analysis for August 10, 2017

Crude oil prices where nearly unchanged following the Department of Energy’s inventory report on Wednesday.  The larger than expected draw was offset by geopolitical concerns as the United States and North Korea standoff. The Saudi’s announced on Tuesday that they would further reduce exports globally by another 520K barrels per day, which has helped buoy the oil markets. The export technique by the Saudi’s appears to be working as imports declined this past week. That being said the dollar continued to weigh on prices. Demand continues to remain robust especially for distillates. This includes diesel and heating oil which are seeing very strong exports.

Technicals

Crude oil prices were rangebound, and were unable to push to new highs, despite a strong rally in heating oil. Crude prices are capped by resistance near last week’s highs at 50.43.  Support is seen near the August lows at 48.50.  Prices continue to track the 10-day moving average which is seen near 49.43. Prices appear to be forming a bull flag pattern which is a pause that refreshes higher.  Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flat trajectory which reflects consolidation.

Imports Declined

The Department of Energy reported that U.S. crude oil imports averaged about 7.8 million barrels per day last week, down by 491,000 barrels per day from the previous week. Over the last month, crude oil imports averaged over 8.0 million barrels per day, 4.9% below the same month last year.

Inventories Declined

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 Perked Up

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.

API Reported a Crude Oil Draw

The rise follows the weekly API report showing a 7.8-million-barrel draw in U.S. crude inventories, which was more than expected as analyst had forecast a 2.3-million-barrel draw. Gasoline inventories rose by 1.529 million barrels for the week ending August 4, compared to analyst expectations that inventories for the fuel would fall by 1.5 million barrels.

The dollar Remains Buoyed

The dollar continued to remain buoyed which is weighing on crude oil prices. The stronger than expected productivity data gave a boost to the greenback. The 0.9% Q2 productivity growth rate with a 3.4% pace for output slightly beat estimates, following revisions to both series over the past three years that tracked the annual revisions in the last GDP report, with modest boosts to the Q1 data but big downward bumps in Q3 and Q4. We saw hourly compensation growth of just 1.6% in Q2, following a sharp boost to the Q1 figures and downward Q3-Q4 revisions, as seen in the last set of income data. The mix left unit labor cost growth of 0.6% in Q2 after a boost in Q1 but trimmings in Q3-Q4.

Canadian Housing Starts Grew

Canada housing starts grew at a 222.3k unit rate in July following the 212.9k pace in June. The increase is contrary to expectations for a modest slowing in July (we projected 200.0k). Multiple urban starts grew 10.4% to a 142.0k unit pace while single detached starts fell 3.9k to 64.2k units. The six month moving average of total starts improved to 217.6k in July from 215.2k in June. By region, B.C. and Alberta were the main drivers of starts growth in July. Starts in Toronto trended lower in July, but were close to the average level seen this year. Vancouver housing starts edged slightly higher due to an increase in townhome and apartment construction.