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Crude Oil Price Analysis for August 17, 2017

By:
David Becker
Updated: Aug 16, 2017, 18:46 UTC

Crude oil prices traded under pressure, despite a larger than expected draw in crude oil inventories and robust distillate demand reported on Wednesday by

WTO Oil Analysis

Crude oil prices traded under pressure, despite a larger than expected draw in crude oil inventories and robust distillate demand reported on Wednesday by the Department of Energy.  News that Libya was increasing output at its largest field seemed to trump the reports on inventory draws. Imports moved higher on a weekly basis, despite Saudi Arabia’s effort to reduced exports to the United States and the rest of the globe.  U.S. production rose in the latest week, which has capped any upside as fears that the U.S. will be able to replace OPEC’s oil perpetuate in the market.

Technicals

Crude oil prices were trading lower, breaking through the weekly lows at 47.02, and moving down to close near 46.70. This came despite the better than expected inventory number reported on Wednesday and Tuesday. Prices were unable to recapture trend line resistance which was former support near the 48.50 level.  Target support is seen near the July 23 lows at 45.40.  Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. The 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 index moved from positive to negative territory confirming the sell signal. The relative strength index (RSI) moved lower with price action, breaking through support levels which reflect accelerating negative momentum.

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Imports are Starting to Decline

The Energy Information Administration reported on Wednesday that U.S. crude oil imports averaged over 8.1 million barrels per day last week, up by 364,000 barrels per day from the previous week. Over the last month, crude oil imports averaged over 8.0 million barrels per day, down 5% on a year over year basis.

Inventories are Dropping

Despite the rise in imports, refiners continue to generate product, which led to a large decline in crude oil stocks. According to the EIA, U.S. commercial crude oil inventories decreased by 8.9 million barrels from the previous week. Gasoline inventories remained unchanged last week, while distillate fuel inventories increased by 0.7 million barrels last week. Total commercial petroleum inventories decreased by 7.3 million barrels last week.

Demand Remains Robust

Demand remains strong especially for distillates. Total products demand over the last month averaged 21.2 million barrels per day, up by 2.0% from the same period last year. Over the last month gasoline demand averaged over 9.7 million barrels per day, down by 0.3% from the same period last year. Distillate fuel demand averaged over 4.3 million barrels per day over the month, up by 15.9% year over year.

Libya is Raising Production

Libya is returning with more barrels to the market after its biggest oil field started raising production and an export terminal re-opened for tanker loading.  Reports that Crude oil output at Sharara which is the biggest field in Libya, which is exempt from OPEC cuts increased to 230,000 barrels per day on Tuesday to 30,000 barrels per day increase just since Sunday. In another boost to Libyan oil exports, the Zueitina oil terminal resumed loading. The Zueitina oil terminal had ceased loading cargos on Sunday, as port workers protested, demanding better working conditions.

This meant that oil coming from the fields around Zueitina was to be stored at the port for the duration of the protest, and a spike in exports would likely follow. As of Sunday, Sharara’s output had fallen by 100,000 barrels per day over the past week, to 200,000 barrels a day.

Canada Saw Increasing Foreign Investment

Canada saw a C$0.9 billion outflow of foreign investment in June after the huge C$29.4 billion inflow in May and C$10.6 billion inflow in April. This could be part of increasing interesting in energy capital expenditures. The outflow in June is the first since July of 2015. A C$2.6 billion reduction in total bonds followed inflows of C$20.8 billion in May and C$13.0 billion in April. Federal government bonds holdings were cut by C$9.8 billion in June after adds of C$4.3 billion in May and C$6.7 billion in April. Canadian yields surged in June after the BoC’s hawkish U-turn, which culminated in a 25 basis point rate increase in July. Meanwhile, Canadians invested C$13.2 abroad in June.

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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