Crude Oil Price Analysis for January 11, 2018

Crude oil prices moved higher Wednesday pushing through resistance following a larger than expected draw in crude oil that took WTI above 63.50 per barrel. Imports continue to move lower and domestic production was down significantly which is helping crude oil prices gain traction.  Today’s build in distillate stocks was offset by a large decline in crude oil stocks, which reduced total inventories by more than 5-million barrels.

Technicals

Crude oil prices surged higher climbing above 63.50 before edging slightly lower and trading near 63.30.  Support is seen near the former May 2015 highs at 62.51, and then the 10-day moving average at 61.33. Momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

Refineries are Running at Elevated Levels

The Energy Information Administration reported that U.S. crude oil refinery inputs averaged 17.3 million barrels per day during the week ending January 5, 2018, 285,000 barrels per day less than the previous week’s average. While runs were down, refineries operated at 95.3% of their operable capacity last week, nearly 5% higher than last year.

Production Declined

Production declined by 293K barrels this week and imports also fell. The EIA revealed that U.S. crude oil imports averaged about 7.7 million barrels per day last week, down by 308,000 barrels per day from the previous week. Over the last month, crude oil imports averaged 7.9 million barrels per day, 4.3% less than the same four-week period last year.

Inventories Were Mixed

Inventories were mixed but total inventories declined. As you would expect when refiners are running near capacity, U.S. commercial crude oil inventories decreased by 4.9 million barrels from the previous week, as crude is in high demand. Gasoline inventories increased by 4.1 million barrels last week, and Distillate fuel inventories increased by 4.3 million barrels last week, but this was offset by a further decline in propane inventories which decreased by 6.3 million barrels last week. Total commercial petroleum inventories decreased by 5.5 million barrels last week.

Demand is Picking Up

Total products demand over the last month period averaged 20.6 million barrels per day, up by 5.6% from the same period last year. Over the last month gasoline demand averaged about 9.1 million barrels per day, up by 2.5% from the same period last year. Distillate fuel demand averaged about 3.9 million barrels per day over the last four weeks, up by 6.8% from the same period last year. Jet fuel demand is up 13.4% compared to the same month last year.

Trade Prices Missed Expectations

The U.S. trade price report undershot estimates with fairly flat export and import prices beyond a 2.0% climb for petroleum imports and a 0.4% drop for agricultural exports. There was a flat December figure for nonagricultural export prices, and a 0.2% drop for import prices ex-oil. Despite December restraint, which may reflect the dollar rise at the start of Q4 that has since been reversed. Trade prices have been lifted since December of 2016 by the dollar’s net drop, recovering growth abroad, and an upgrade in U.S. growth prospects with the new tax law. Production restraint from OPEC and December supply disruptions in the U.K. have also lifted prices, though this boost has been capped by soaring U.S. shale output, with particularly large gains into January. Export prices ex-agriculture and import prices ex-petroleum are poised for 2% gains in 2018, following respective gains of 2.7% and 1.3% in 2017 and 1.4% and 0.3% in 2016.