Crude Oil Price Analysis for January 17, 2018

Crude oil prices hit a fresh 3-year high but was unable to hold on to gains, and drifted lower for the balance of the trading session.  Hefty crude oil draws over the past couple of weeks, combined with a decline in U.S. production has allowed Brent prices to hit $70 per barrel and WTI to climb to $64.89.

Technicals

Crude oil prices hit fresh 3-year highs but were unable to hold on to gains. Prices are consolidating at elevated levels. The term structure is a robust contanto, which means that spot prices are higher than deferred prices. Support is seen near the 10-day moving average at 62.53.  Resistance is seen near the highs at 64.89, and then the 50% Fibonacci retracement level at 68.50.  The RSI is moving lower in tandem with price action and is poised to move out of the overbought range which could foreshadow a correction.

The Oil Glug is nearly Gone

U.S. commercial inventories show that the oil glut is in the rear view mirror and over the past two months they have been within the average range for the season, thanks to hefty draws. These draws, are a signal of higher-than-expected demand that is not only an American trend but a global one.

For now, global crude oil demand forecasts seem to be overwhelmingly positive. The EIA, in its latest Short-Term Energy Outlook, forecast global oil consumption growth of 1.7 million barrels per day this year and a bit less in 2019.

The International Energy Agency is a bit more guarded, forecasting in its latest Oil Market Report an average demand growth rate of 1.3 million bpd for this year. This would be a slowdown from last year’s 1.5 million barrels daily, but still a robust growth rate, in spite of the wider adoption of EVs and the increase in renewable power generation capacity.

U.S. Empire Manufacturing Index Fell in January

U.S. Empire State manufacturing index fell 1.9 points to 17.7 in January, weaker than forecast, after edging up 0.2 ticks to 19.6 in December which was revised from 18.0. It was 6.5 a year ago. The recent high-water mark was 28.1 in October. The employment component dropped to 3.8 from 22.9, while the workweek declined to 0.8 from 9.3 which was revised from unchanged. New orders dipped to 11.9 from 19. Prices paid climbed to 36.2 from 29.7, with prices received nearly doubling to 21.7 from 11.6. The 6-month index improved to 48.6 from 46.3. The future employment reading was 26.9 from 24.0, with new orders at 47.6 from 42.7, while prices paid were 52.9 from 50.0 and prices received were 31.2 from 27.5.

Canadian Consumer Confidence Slipped

Canada’s consumer confidence continued to unwind from its year-end peak. The weekly Nanos economic mood index, fell to 60.5 in the week ending January 12 from 61.9 in the first week of this year and a record high 61.2 in the week ending December 29, 2017. Hence, confidence remains elevated on a historically basis, despite the slippage in the first two weeks of the new year. A robust job market, solid housing market, historically low mortgage rates, continued economic expansion and a recent pick-up in wage growth are all supportive of confidence in the near term.

Canadian Existing Home Sales Grew

Canada existing home sales grew 4.5% in December after the 3.9% gain in November. This was the fifth straight monthly gain, with sales fully recovering from the slump last summer according to CREA. Sales grew 4.1% on a year comparable in December after the rebound in November year comparable sales growth that ended a seven month run of declines. Sales totaled 45,976 in December, a record amount, and grew 9% over November and December. The MLS home price index slowed to a 9.1% year over year pace in December, the slowest in 2017, as it further unwinds from April’s 19.7% year over year all time peak growth rate. Solid economic growth, sill historically low mortgage rates and a robust job market are supportive of home sales. The January 1st implementation of new mortgage rules likely lifted sales in November and December.