Crude Oil Price Analysis for August 22, 2017

Oil prices whipsawed attempting to take out the recent highs, but news that compliance from OPEC producers slipped, put downward pressure on prices. Despite robust inventory draws that have been seen during the last two Department of Energy reports, prices have been unable to pierce through the most recent topping pattern. The dollar eased on Monday, which should help prices as oil is quoted in dollars, making it less expensive in other currencies.

Technicals

Oil prices dipped, giving back most of its 2.5% gains on Friday by sliding 1.75% Monday, following news that OPEC production compliance declined. Prices were unable to take out the prior’s sessions highs, which coincides with an upward sloping trend line that comes in near 48.15. Prices have been moving lower through the 10-day moving average which is seen as short-term support near 48.13.  Target support on crude oil is seen near the 50-day moving average at 46.54.  Momentum is negative to neutral as the MACD (moving average convergence divergence) histogram prints in the red, with a downward sloping trajectory which points to lower prices. The relative strength index (RSI) which is a momentum oscillator that measures accelerating and decelerating momentum, moved lower with price action which reflects accelerating negative momentum.

OPEC Compliance is Slipping

OPEC is holding a meeting of its Joint OPEC-Non-OPEC Technical Committee, which monitors the cartel and friends’ compliance with the output cuts. Two weeks ago, OPEC held a meeting with some of the producers and cited its members Iraq and the UAE, as well as non-OPEC signatories to the deal Kazakhstan and Malaysia, as laggards in compliance.

The market is now awaiting any news, following this meeting in Vienna to discuss compliance and the results of the extraordinary meeting in Abu Dhabi two weeks ago. In its latest Monthly Oil Market Report, OPEC said that its production increased in July, by 172,600 barrels per day compared to June, to reach 32.869 million barrels. Libya, Nigeria, and Saudi Arabia were the main drivers behind the OPEC production increase.

While Libya and Nigeria are exempt from the deal, the other OPEC members are not doing whatever it takes to clear the glut. The latest monthly oil market report by the IEA showed that OPEC compliance slipped to 75% in July, from 77% in June. Compliance within the non-OPEC group of producer’s declined to 67%. Combined, the 22 producers that have pledged to cut production are overproducing a total of 470,000 barrels per day, according to the IEA.

Inventories Continue 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.

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 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.

Canada Wholes Shipments Fell

Canada wholesale shipment values fell 0.5% in June month over month after a revised 1.0% gain in May which was 0.9%. The decline was smaller than anticipated which was a median -0.9%. Shipments contracted in five of the seven subsectors that comprise the report. Food, beverage and tobacco and motor vehicles and parts led the way lower. Total shipment volumes declined 0.7% in June compared to May. GDP is on track for a flat result in June after the 0.6% surge in May.