Crude Oil Price Analysis for December 19, 2017

Crude oil prices continued to consolidate on Monday, opening higher and closing lower, as the treat of additional U.S. production is offsetting reduced OPEC production.  The recent reduction in Canadian crude has led to stronger demand for WTI, while gasoline consumption could fall in the first half of 2018.

Technicals

Crude oil remains rangebound, and is hovering near the 10-day moving average at 57.07.  Resistance is seen near a downward sloping trend line that comes in near 58.75, while support is seen near upward sloping trend line that comes in near 56.75. Prices continue to form a weekly bull flag patter than is a pause that refreshes higher after breaking out above the 54 handle. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to higher prices.

Canadian Crude Exports Slow

The spill and shutdown of TransCanada’s Keystone pipeline in November slowed the flow of oil from Canada to the U.S. as the company was forced to make repairs. That led to a minor spike in WTI as supply tightened a bit in the U.S., but upstream in Canada it put downward pressure on WCS amid a glut of supply. Canadian oil was diverted into storage as the pipeline underwent repairs, and the backup pushed prices down.

Gasoline Consumption Could Fall

Gasoline is the most consumed petroleum product in the U.S. Last year, motor gasoline consumption averaged about 9.3 million barrels a day, or 391 million gallons per day, which is the largest amount recorded and equal to about 47 percent of total U.S. petroleum consumption, data by the EIA shows. Some 29% of all U.S. energy consumption in 2016 was for transporting people and goods from one place to another, the EIA says. Petroleum products provided around 92 percent of the total energy the U.S. transportation sector used last year.

The latest available data by the U.S. Department of Transportation shows that the seasonally adjusted vehicle miles traveled for October 2017 stood at 268 billion miles, a 0.8-percent increase over October 2016, and 0.2-percent growth as compared to September 2017. The cumulative estimate for this year is 2,685 billion vehicle miles of travel.

Final Eurozone Inflation was Higher

Final Eurozone November HICP inflation was confirmed at 1.5% year over year, as had been widely anticipated, lifting from 1.4% year over year in the previous month, but still well off the ECB’s objective for price stability. The breakdown confirmed that the uptick was entirely due to a renewed acceleration in energy price inflation, fitting into the dovish-leaning narrative of ECB President Draghi. Draghi has been continuing to stress that overall wage growth remains unsatisfactory, too, despite improvements on the labor market. The Bundesbank, in contrast, has been warning about the risk of significant wage increases, at least in Germany, amid signs of growing capacity constraints in the manufacturing sector, and there have been more and more ECB council members arguing that come September next year there won’t be the need for further QE, even if Draghi still shies away from committing to a QE end date.

Japan’s Tankan Show Subdued Inflation

Japan’s Tankan survey on business inflation expectations showed a continued prognosis of benign price pressures, which offset, at least from a BoJ policy-implications perspective, a forecast-beating 16.2% year over year surge in Japanese exports, which is the latest sign that the Japanese economy is getting back on track under the “Abenomics” policy regime, coupled with robust global growth.