Crude Oil Price Analysis for January 10, 2018

Crude prices broke out as declining inventories and robust refiner demand lead prices above 63-per barrel.  The market remains buoyant, with the decline in the U.S. rig count on Friday providing the latest addition to the bullish narrative and put a temporary dent in the argument that U.S. shale production is set to expand notably.  Saudi Arabia has cut back exports to the United States while refinery operations are hitting on all cylinders and are currently at full capacity.

Technicals

Crude oil prices broke out and a weekly chart of the move provides a better picture of the future landing spots for WTI.  Prices pushed through resistance near the May 2015 highs at 62.51, and now are on course to define a new range.  A close for the week below the 62.51 level would reject the weekly breakout. Prices have passed through the first Fibonacci retracement which was created from connecting the highs in 2013 to the lows in 2016, which shows a 50% retracement at 68.92.  The 61.8% retracement level of the move would come  in near 79.29.

Momentum is positive and strong as the RSI (relative strength index) which is a momentum oscillator that measures accelerating and decelerating momentum, along with overbought and oversold level. The RSI surged higher, hitting levels not seen since 2011, when prices were above the 112 level. Momentum as reflected by the MACD is positive as the index is printing in the black with an upward sloping trajectory which points to higher prices.

Saudi Exports Decline

The drop in Saudi crude oil exports, in combination with lower Venezuelan deliveries that has been due to both lower production from the Latin American nation, as well as quality issues with its crude, has meant that OPEC deliveries to the U.S. were 72,000 barrels per day lower last year than in 2016. That equates to a drop of 26 million barrels year over year.

North Korea is Friends Again with South Korea

North Korea Weapons are Only Aimed at U.S. Korean’s weapons are only aimed at the U.S., not S. Korea, Russia or China according to N. Korean officials, and is not an issue between North and South Korea. They repeat that discussion of the nuclear issue would negatively impact inter-Korean ties. Seems N. Korea is continuing to take the “divide and conquer” tack to its nuclear program, seeking to isolate the U.S. as its main adversary.

Small Business Optimism Dropped

U.S. December NFIB small business optimism index dropped 2.4% to 104.9, weaker than expected, after jumping 3.6% to 107.5 in November. A firmer reaction was anticipated as a result of the tax reform passage. The index was at 105.8 a year ago. The 107.5 from November was the highest since 1983. The percentage of firms planning to hire slowed to 20% from 24%, and those expecting a better economy slid to 37% from 48% tied the highest since December 2016.

Canada Housing Starts Slowed

Canada housing starts slowed to a 217.0k pace in December from 251.7k  in November, nearly as expected. Multiple starts showed the anticipated tumble, down 22% to 135.2k after surging 17% to 175k in November. Single-detached starts grew 4.7% to 63.0k.