Crude Oil Price Analysis for January 19, 2018

Crude oil prices edged lower on Thursday following the Department of Energy’s report on inventories that were delayed a day due to the MLK holiday.  Despite robust distillate demand and a draw in inventories, prices remained nearly unchanged. While crude oil and distillate fuels saw reduction in stocks, gasoline supplies increased, as refinery operations cooled down.  Imports continue to decline, allowing crude oil inventories to rebalance. The positive inventory data was offset by a rebound in U.S. production by 513K barrels.

Technicals

Crude oil prices were nearly unchanged on Thursday following the Department of Energy’s inventory report. Prices traded in a tight range and are 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 63.14, while resistance is seen near the weekly highs at $64.89. Positive momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the black with a declining trajectory which points to lower prices.

Refinery Inputs Declined

The EIA reported that U.S. crude oil refinery inputs averaged 16.9 million barrels per day during the week ending January 12, 2018, 448,000 barrels per day less than the previous week’s average. Refineries operated at 93.0% of their operable capacity last week. At the same time crude oil imports averaged 7.9 million barrels per day, 3.7% less than the same four-week period last year. Distillate fuel imports averaged 147,000 barrels per day last week.

Inventories Were Mixed

U.S. commercial crude oil inventories decreased by 6.9 million barrels from the previous week, more than the 3.5 million barrels expected. Gasoline inventories increased by 3.6 million barrels last week, while distillate fuel inventories decreased by 3.9 million barrels last week Total commercial petroleum inventories decreased by 13.8 million barrels last week, which is a substantial sum.

Demand is Accelerating

The Department of Energy reported that total demand over the last four-week period averaged over 20.5 million barrels per day, up by 6.2% from the same period last year. Over the last four weeks, gasoline demand averaged 8.9 million barrels per day, up by 3.9% from the same period last year. Distillate fuel demand averaged 4.1 million barrels per day over the last four weeks, up by 16.0% from the same period last year.

Philly Fed Manufacturing Index Declined

U.S. Philly Fed’s manufacturing index fell 5.7 points to 22.2 in January, a little weaker than expected though still at a health level. The index bounced 3.6 points to 27.9 in December after tumbling 4.5 points to 24.3 in November. The index was 24.1 a year ago. The employment component slid to 16.8 from 19.7, with the workweek at 16.7 from 12.6. New orders declined to 10.1 from 28.2 (revised from 20.4). Prices paid rose to 32.9 from 27.8 (revised from 21.1), with prices received at 25.1 from 12.6 . The 6-month general business index fell to 42.2 from 52.7 . The future employment index dipped to 34.9 from 36.1, with new orders at 46.2 from 59.0, and prices paid at 54.2 from 56.0. The 6-month capital expenditures index slid to 36.2 from 38.5.

Jobless Claims Dropped to a 45-year Low

The 41k initial claims drop to a 45-year low of 220k in the BLS survey week reversed the 11k rise to 261k in the week of both New Year’s and the “bomb cyclone” that included a 27k spike in NSA claims in New York. Today’s 220k figure was the lowest since the 218k reading in February of 1973, versus a prior cycle-low of 223k in mid-October. Claims are averaging 339k thus far in January, versus 242k averages in both November and December, and 233k in October. The 220k BLS survey week reading undershot recent survey week readings of 245k in December, 240k in November and 223k in October.