Crude Oil Price Analysis for February 15, 2018

Crude oil prices reversed course late in the trading session, as the risk on trade came back into vogue.  Prices initially moved lower following the EIA inventory report. Prices have dropped 13% since hitting a high of 66.66.  Increasing production and the massive risk off trade in the global capital markets provided the underlying impetus for the massive selloff.  Prices are attempting to form a bottom, as demand remains robust, and imports are lower. Trader’s appearing to be focusing on increases in U.S. crude production, as the driving force behind the petroleum complex.

Technicals

Crude oil prices generated an outside day which is a lower low a higher high and a higher close. An outside reversal day occurs at the end of a trend. Resistance is seen near the 10-day moving average at 61.98. Negative momentum is decelerating as the MACD (moving average convergence divergence) histogram prints in the red with an increasing trajectory which points to consolidation.

The Department of Energy reported that U.S. crude oil refinery inputs averaged about 16.2 million barrels per day during the week ending February 9, 2018, 635,000 barrels per day less than the previous week’s average. Refineries operated at 89.8% of their operable capacity last week. This is a shoulder period when refineries wind down and begin to prepare for production during gasoline season. Expectations should be for crude builds and product draws. Imports continue to remain depressed. Over the last month, crude oil imports averaged about 8.1 million barrels per day, 5.0% less than the same four-week period last year. This was someone offset by an increase in crude oil production by 20K barrels a day taking the total up to 10.27 million barrels a day.

Inventories Were Mixed

The Energy Information Administration reported that U.S. crude oil inventories increased by 1.8 million barrels from the previous week. This was less than expectations. At 422.1 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Generally, expectations would be for a quicker accelerating in the decline in crude oil inventories.

Gasoline inventories increased by 3.6 million barrels last week, more than expectations. Distillate fuel inventories decreased by 0.5 million barrels last week in line with expectations. Total commercial petroleum inventories decreased by 2.7 million barrels last week.

Demand remains very strong. The EIA reported that total products demand over the last month averaged 20.7 million barrels per day, up by 6.9% from the same period last year. Over the last four weeks, gasoline demand averaged 9.0 million barrels per day, up by 6.5% from the same period last year. Distillate fuel demand averaged over 4.0 million barrels per day over the last four weeks, up by 9%.

U.S. Retail Sales Fell

U.S. January retail sales fell 0.3%, with the ex-auto component unchanged. The December 0.4% headline increase was revised down to flat, with the ex-auto now at 0.1% versus the prior 0.4%. The sales figure excluding autos, gas, and building materials was unchanged, with December revised to unchanged from 0.4% previously. Vehicle sales declined 1.3% after a 0.1% December dip. Building materials dropped 2.4%. Health and personal care fell 1.2%, with sporting goods off 0.8%. On the positive side, gas station sales increased 1.6%, as did miscellaneous sales, while clothing increased 1.2%. Non-store retailers were flat. The weaker than expected data will be lost on the markets initially, in the wake of the hotter CPI.

The API Reported a Build

The American Petroleum Institute (API) reported a build of 3.947 million barrels of United States crude oil inventories for the week ending February 9, according to the API data. Analysts had expected a smaller build of 2.825 million barrels in crude oil inventories. Last week, the American Petroleum Institute reported a build of 1.050 million barrels of crude oil, along with a draw in gasoline inventories of 227,000 barrels.

Canada’s Teranet/National HPI grew 0.3% in January

Canada’s Teranet/National HPI grew 0.3% in January after the 0.2% rise in December. But only 4 out of 11 metro areas showed gains, which Teranet and National Bank note is the first time since January of 2016 that the composite index has displayed such a lack of breadth. A 1.2% gain in the Vancouver index drove the gain in the composite index. The Toronto index rose 0.2%, Victoria was up 1.0% and Montreal nudged 0.1% higher. All other regions were weaker. Meanwhile, the composite index slowed to a 8.7% year over year pace from 9.1% year over year in December. The annual growth rate posted a record high 14.2% year over year pace in June of last year and has been slowing since.