Crude Oil Price Analysis for August 28, 2017

Crude oil prices were up nearly 1% following the sharp sell-off came on Gulf of Mexico storm fears, which has hurricane Harvey bearing down on the Texas coast. About one-third of U.S. refining capacity is within the storm’s path, leading traders to believe outages there could significantly dent crude oil demand. Potential refinery outages have seen gasoline futures spike higher. Crude oil prices rebounded following news that active rigs in the United States declined in the latest week.

Technicals

Crude oil rebounded, recapturing the 10-day moving average near 47.73. Support is seen near an upward sloping trend line at 47.30.  Resistance is seen near a downward sloping trend line that comes in near 49.75. Negative momentum is decelerating as the MACD (moving average convergence divergence) index prints in the red, but the MACD histogram is rising which reflect consolidation.

Rigs Declined in the Latest Week

The number of active oil and gas rigs in the United States fell this week by 6 rigs. Combined, the total oil and gas rig count in the US now stands at 940 rigs, up 451 rigs from the year prior, with the number of oil rigs in the United States decreasing by 4 and the number of gas rigs decreasing by 2. Oil rigs in the United States now number 759, 353 rigs above this time last year. Canada lost 6 oil rigs again this week, with the number of gas rigs increasing by 9, bringing Canada’s total to 217 oil and gas rigs, 71 above the year ago levels.

Hurricane Harvey Could be Massive

The National Oceanic Atmospheric Administration reported on Friday that Hurricane Harvey will make landfall in the next 24-hours, as a category-3 hurricane. Harvey is coming through the Gulf of Mexico with a low barometric pressure and warm water ahead. The area that the storm is brewing through is one of the heaviest congested areas for refinery’s in the United States. Crude oil imports from around the globe make their way into the Gulf, for processing. The Gulf is also home to one of the largest distillate and jet fuel production sites in the United States.

The storm is bearish for crude oil prices and bullish for product prices. This should continue to place a bid under the heat crack, as refiners might be unable to product enough distillates to meet demand.  Expectations are that there will be 15-25 inches of rain from the storm and a storm surge of 6-10 feet. If refiners are flooded and shut down, they might not be able to come back for multiple months.  The reduction in refinery runs throughout the United States will be positive for product prices, but bearish for crude oil.

Imports Increased last week

The Department of Energy reported that U.S. crude oil imports averaged 8.8 million barrels per day last week, up by 664,000 barrels per day from the previous week. This comes despite OPECs attempt to reduce global stockpiles.   Over the last month, crude oil imports averaged over 8.2 million barrels per day, 3.1% below the same month last year.

Inventories Declined

Inventories continue to move lower which does show that OPECs output reduction is having some effect. The Energy Information Administration reported that U.S. commercial crude oil inventories decreased by 3.3 million barrels from the previous week. Gasoline inventories decreased by 1.2 million barrels last week, while distillate fuel inventories remained unchanged last week. Total commercial petroleum inventories remained unchanged last week.

Demand for distillates remains robust. The EIA reported that total products demand over the last month averaged over 21.0 million barrels per day, up by 1.4% from the same period last year. Over the last month, gasoline demand averaged 9.7 million barrels per day, down by 0.4% from the same period last year. Distillate fuel demand averaged over 4.2 million barrels per day over the last month, up by 14.4% from the same month last year.

Durable Good Dropped

U.S. durable goods orders dropped 6.8% in July after jumping 6.4% in June from unchanged in May which was revised from -0.1%. Transportation orders fell 19.0% following June’s 19.5% surge which was revised from 19.0%. Excluding transportation, orders were up 0.5%. Nondefense capital goods orders excluding aircraft edged up 0.4% from unchanged which was revised from -0.1%. Shipments rose 0.4% from June’s unchanged print. Nondefense capital goods shipments excluding aircraft climbed 1.0% from 0.6%. Inventories increased 0.3% from 0.5% previously which was revised from 0.4%. The inventory-shipment ratio was steady at 1.68.