Crude Oil Price Analysis for August 31, 2017

Crude oil prices continue to move lower on Wednesday despite a larger than expected draw in crude oil inventories reported by the Department of energy on Wednesday. Traders are focused on the disruption in refinery operations, due to Hurricane Harvey.  On Wednesday, Motiva, the largest refinery in the United States, closed operations, adding to the shut ins, that have reduced refining capital in the United States by 20%, which is reducing crude oil demand.

Technicals

Crude oil prices dropped nearly 1%, as demand due to refinery shut ins, are weighing on prices. Prices created an inside day, which reflects indecision. Gasoline and Heating oil prices continue to rise pushing up the refinery crack. Resistance is seen near the 10-day moving average at 47.46, while support is seen near the July lows at 44. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices for crude oil.

Imports Declined

Imports declined in the latest week due to hurricane related interruptions. The EIA reported that U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 885,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.1 million barrels per day, 4.6% below the same four-week period last year.

Inventories Declined

Inventories saw an unexpected decline according to Wednesday’s report. U.S. commercial crude oil inventories decreased by 5.4 million barrels from the previous week. This compares to expectations that inventories would drop by 2-million barrels. Gasoline inventories remained unchanged last week, and distillate fuel inventories increased by 0.7 million barrels last week. Total commercial petroleum inventories decreased by 1.1 million barrels last week.

Demand remains robust. Total products demand over the last month averaged over 21.2 million barrels per day, up by 3.4% from the same period last year. Over the last month, gasoline demand averaged 9.7 million barrels per day, up by 0.2% from the same period last year. Distillate fuel demand averaged 4.2 million barrels per day over the last four weeks, up by 11.1% from the same period last year. Jet fuel demand is up 3.3% compared to the same month period last year.

U.S. crude oil refinery inputs averaged over 17.7 million barrels per day during the week ending August 25, 2017, 264,000 barrels per day more than the previous week’s average. Refineries operated at 96.6% of their operable capacity last week. Gasoline production increased last week, averaging 10.6 million barrels per day. Distillate fuel production decreased last week, averaging about 5.1 million barrels per day

The American Petroleum Institute (API) reported a major draw of 5.78 million barrels in United States crude oil inventories, compared to analyst expectations of a draw of 1.75 million barrels for the week ending August 25. Gasoline inventories rose by 476,000 barrels for the week ending August 25. Distillate inventories fell this week, by 486,000 barrels, while inventories at the Cushing, Oklahoma, site increased by 582,000 barrels.

Canada’s Current Account Expanded

Canada’s current account deficit deepened to -C$16.3 billion in Q2 from a revised -C$12.9 billion in Q1. While the size of the current account deficit undershot expectations in, the roughly C$4.0 billion deepening in the deficit was anticipated. Indeed, the widening in the current account shortfall was driven by the goods deficit, which widened to -C$5.2 billion in Q2 from -C$1.9 billion in Q1. The services deficit narrowed slightly to -C$5.5 billion in Q2 from -C$5.7 billion in Q1.

Canadian Weekly Earnings Grew

Canada average weekly earnings grew 0.3% in June compared to May, leaving a 1.8% year over year growth rate in June. Hence, the report is consistent with sluggish compensation growth despite a firm employment growth backdrop. Total non-farm payrolls surged 79.7k in June versus May. The timely labor force survey revealed a 45.3k gain in June, that gave way to a 10.9k increase in July.

U.S. Payrolls Increased

The 237k August ADP rise beat 170K expectations for private payroll estimate with a 190k total payroll increase, following a big boost in the July rise to 201k from 178k that narrowed the gap to the 205k private payroll increase in that month. A solid 33k August goods employment rise tracked firm factory sentiment readings, alongside a similarly robust 204k service job gain. The “as reported” ADP figures have overshot private payrolls in every month since the October methodology change except April, June, and July, leaving an average overshoot of a hefty 40k and an average monthly 2017 gain of 217k, so today’s overshoot is not particularly useful for forecasting Friday’s jobs figure despite what we still assume is upside risk to our 190k payroll estimate.