Crude Oil Price Analysis for August 7, 2017

Crude oil prices were on a wild ride this week, moving above $50 per barrel briefly following a larger than expected draw in gasoline inventories and stronger than expected demand in products.  During the move higher, the U.S. dollar has been declining, making crude oil in Euro’s less expensive, and allowing crude oil to move higher. On Friday, the labor department released a stronger than expected jobs report, which could help buoy the dollar and take some of the steam out of crude oil prices. Meanwhile, Baker Hughes reported that Rig counts dropped during the past week.

Technicals

Crude oil prices continued to generate a bull flag pattern which is a pause that refreshes higher.  Prices are consolidating after breaking out above a downward sloping trend line that connects the highs in April to the highs in May and comes in near 48.50.  As long as prices stay above this trend line the breakout is intact and the uptrend is in place. Short term support is seen near the 10-day moving average at 49.26. Positive momentum has decelerated as the MACD (moving average convergence divergence) histogram, prints in the black with a declining trajectory which points to consolidation. The RSI (relative strength index) which is a momentum oscillator that measures accelerating and decelerating momentum, is moving sideways at the 59 handle which also reflects consolidation in prices action.

Strong U.S. Data is Buoying the Dollar

Strong U.S. means that interest rates will move higher making the dollar more attractive.  Since oil is quoted in dollars, a stronger dollar means that oil prices are cheaper in other countries. While crude and crude oil priced in Euros has remained stable and highly correlated over the past year, it recently has broken down with the Euro increasing relative to the dollar.  A stronger dollar might weigh on oil prices, allowing the two to converge.

Non-farm Payrolls Were Stronger Than Expected

U.S. nonfarm payrolls rose 209k in July with earnings rising 0.3%. Expectations were for a 190K increase. The June 222k job gain was revised up to 231k, but May’s 152k increase was bumped down to 145. There was no revision to June’s 0.2% earnings rise. The unemployment rate was dipped to 4.3% versus 4.4%. The labor force jumped 349k following the prior 361k gain, while household employment increased 345k from 245k. The workweek was steady at 34.5. Total private payrolls increased 205k. The goods producing sector added 22k workers, with construction up 6k, and manufacturing up 16k. Jobs in the services sector increased 183k, with the 62k gain in leisure/hospitality leading the way. Education/healthcare gains were up 54k, while business services added 49k. Government jobs rose 4k, with the Federal sector unchanged.

Canadian Employment Rose in July

Canada employment grew 10.9k in July after the 45.3k gain in June. Full time employment grew 35.1k following an 8.1k rise. Part time employment fell 24.3k on the heels of a 37.1k run-up. The unemployment rate fell to 6.3% in July from 6.5% in June, marking a fresh post great recession low. The participation rate declined to 65.7 in July from 65.9 in June.

Canadian Trade Deficit Widened

Canada’s trade deficit widened to -C$3.6 billion in June from a revised -C$1.4 billion in May. The worsening of the deficit was well in excess of expectations for a modest widening of the shortfall in June. Exports plunged 4.3% month over month in June while imports grew 0.3% month over month. The drop in exports was driven by a weaker exports of unwrought gold and energy products.

The U.S. Trade Deficit Narrowed

U.S. trade deficit narrowed 5.9% to -$43.6 billion in June from -$46.4 billion in May which was revised from -$46.5 billion. Exports jumped 1.2% after the prior 0.4% gain, while imports dipped 0.2% from -0.1% previously. Excluding petroleum, the deficit was -$39.3 billion from -$40.2 billion which was revised from -$40.3 billion. The “real” balance on goods was -$61.0 billion from -$62.8 billion, with exports rising 1.6% and imports up 0.1%. The balance with China widened to -$32.6 billion from -$31.6 billion, and was -$0.6 billion with Canada from -$1.4 billion.