Crude Oil Price Analysis for August 23, 2017

Crude oil prices moved higher on Tuesday but remained range bound as OPEC non-compliance and strong U.S. production growth is offsetting large inventory draws which are a function of Saudi Arabia curtailing exports to the United States.  OPEC is trying to determine if they should continue to keep their quota’s stable until March of 2018, which will determine at their next meeting at the end of November. OPEC compliance with the current plan dropped to 75% from 77% in June, while Libya and Nigeria who are except continue to pump more oil.

Technicals

Prices remain range-bound and the topping pattern remains in place. Prices will need to push through the 52 level, for traders who are short to feel compelled to cover.  Resistance on crude oil is seen near the 10-day moving average at 47.95, while support is seen near the 50-day moving average at 46.57. A close below this level would likely lead to a test of the July lows at 44.  Negative momentum appears to be decelerating as the MACD (moving average convergence divergence) index is printing in the red, but the trajectory of the MACD histogram is moving higher which reflects declining momentum. Additionally, the RSI (relative strength index), is chopping around and printing in the middle of the neutral range at 49, which reflects consolidation.

The Fate of the OPEC Agreement is in Jeopardy

Kuwait’s oil minister Essam al-Marzouq said on Monday that OPEC’s November meeting would discuss the fate of the current agreement, whether it would extend the cuts further or decide to terminate it. “At our next meeting at the end of November…the most important items will concern the fate of the agreement to extend or terminate the production cut,” Essam al-Marzouq said in an interview with Kuwait TV on Monday, as carried by Reuters.

Meanwhile, OPEC’s committee set up to monitor compliance with the cuts is meeting in Vienna to discuss slipping conformity with the pledges. Citing two sources in the know, Reuters reports that estimates are for a combined compliance of 94 percent for July. At the July meeting in Russia, OPEC said that the OPEC and non-OPEC signatories to the output cut deal reached a 98-percent compliance in June.

However, according to the IEA, OPEC compliance slipped to 75 percent in July, from 77 percent in June. Compliance within the non-OPEC group of producer’s party to the cuts was 67 percent. Combined, the 22 producers that have pledged to cut production are overproducing a total of 470,000 barrels per day according to the IEA.

Canadian Retail Sales Increased

Canada retail sales increased just 0.1% in June after a revised 0.5% gain in May. The gain is smaller than expected. A 1.4% decline in motor vehicle and parts dealers following a 2.3% gain in May drove total sales values lower in June. Hence, the ex-autos sales aggregate improved 0.7% in June after the 0.1% dip in May, leaving a much better than projected gain in June. General merchandise sales gained a hearty 2.9% in June, building material and garden equipment sales were up 2.2% and clothing store sales rose 2.7%. A 1.8% drop in gasoline station sales, which was led by lower prices, weighed on total and ex-auto sales. Total retail sales volumes grew 0.5% in June which was anticipated. GDP is expected to hold steady in June relative to May following the 0.6% month over month surge in May.

U.S. Data Was Positive

U.S. chain store sales edged up 0.2% in the week ended August 19 after dropping 1.6% in the prior week. Weekly sales continue to chart a zig-zag course. However, compared to the same week last year, the annual pace nearly doubled to 2.0% year over year from 1.1% year over year. And the report noted the sales trend is slightly stronger than earlier in the year. It appears the back-to-school season is stretching out to the last minute.

U.S. FHFA home price index edged up 0.1% to 249.3 in June after rising 0.3% to 249.1 in May. Prices are up 6.5% year over year. Six of the nine regions surveyed posted gains, led by the Pacific and the West South Central. Two regions declined, the South Atlantic and New England, while the Mid Atlantic was unchanged. For Q2, home prices are up 1.6%, and climbed 6.6% versus Q2 2016. Home prices were up in nearly every state, according to the report. Tight inventories were cited as the factor propping up prices every quarter over the last six years.