Crude Oil Price Analysis for January 18, 2018

Crude oil prices moved higher on Tuesday reversing the prior day’s decline. News on Tuesday said that the EIA expects U.S. shale production to increase by 111k barrels per day, which should help push overall U.S. production to record levels above 10 million barrels per day. While the overall bullish narrative remains intact, the EIA forecast comes with crude markets have perhaps been looking increasingly ripe for a correction. CFTC data has been showing increasing records in speculative bullish positioning. Traders await Thursday inventory report from the Department of Energy that was delayed one day due to the Martin Luther King Holiday.

Technicals

Crude oil prices edged higher and is forming a bull flag pattern that is a pause that refreshes higher. Support on crude oil is seen near the 10-day moving average at 62.91.  Resistance is seen the weekly highs at 64.89, and then the 50% Fibonacci retracement that comes in near 68.52.  Positive momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the black with a declining trajectory which points to consolidation.

Nigeria Attacks in Focus

The Niger Delta Avengers, who are the the militant group responsible for most of the 2016 attacks on Nigeria’s oil infrastructure, threatened on Wednesday to unleash the deadliest round of attacks on Nigeria’s oil sector, “in a few days’ time”. “This round of attacks will be the most deadly and will be targeting the deep sea operations of the multinationals which include Bonga Platform, Agbami, EA Field, Britania-U Field, Akpo Field; amongst others littered across the deep waters of the Niger Delta region,” the militants said in a statement on their website.

In November 2017, just as Nigeria had been steadily ramping up production from the 2016 lows, the NDA returned to the scene and warned oil companies of a “brutish, brutal and bloody” end of the ceasefire in the oil-rich Delta. Throughout 2017, in the absence of significant militant attacks, Nigeria managed to gradually increase its crude oil production to the point of becoming a headache for OPEC’s cuts because it had been exempt from the initial collective agreement to curtail production.

U.S. Industrial Production Grew More than Expected

The Federal Reserve reported that U.S. industrial production surged 0.9% last month also buoyed by robust gains in mining production after a downwardly revised 0.1 percent decline in November. Expectations were for a 0.4% increase. Industrial production rose at an annual rate of 8.2% in the fourth quarter, the biggest gain since the second quarter of 2010. For all of 2017, industrial output rose 1.8%, the first and largest increase since 2014.

ECB hawk Weidmann suggests rate hike won’t come before 2019

The Bundesbank President once again stressed his preference to end net asset purchases this year, but at the same time repeated his effort to play down the risk of a rate hike already this year, which flared up after the release of the minutes. Weidmann told Germany’s FAZ that expectations that rates won’t rise before the middle of next year “seem to be grosso modo in line with the current forward guidance of the ECB Governing council, which said that interest rates will only increase well beyond the end of net asset purchases”.

U.S. Chain Stores Fell

U.S. chain store sales fell 1.9% to 115.3 in the week ended January 13, nearly erasing the 2.0% bounce in the first week of January. The 12-month pace also slipped to 2.7% year over year, the slowest in seven weeks, from 3.8% year over year previously. Weather was a factor as the snow and ice storms in the Northeast and Midwest kept some consumers away from stores.

U.S. MBA Mortgage Market Rose

U.S. MBA mortgage market index rose 4.1%, along with a 2.7% gain in the purchase index and a 4.4% jump in the refinancing index. The average 30-year fixed mortgage rate surged 10 basis points to 4.33% for the January 12th week after the hotter than expected December core CPI reading. The Fed still has some dovish dissent on the inflation front, though speedier growth and declining joblessness seems likely to drive wages and inflation expectations higher at some stage, which shouldn’t cool the demand in the housing market amid low inventories.