Crude Oil Price Analysis for January 29, 2018

Crude oil prices continued to grind higher as the dollar buoyed prices despite an increase in active oil rigs. Baker Hughes reported on Friday that active oil rigs increased by 12, with most of the increase coming in the Permian basin. Traders instead continued to focus on the value of the Greenback, which moved lower despite Trumps statement that he favors a strong dollar.  Japanese CPI improved as energy prices accelerated, along with Canadian CPI which slowed by transitory factors.

Technicals

Crude oil prices popped above the $66 handle during the North American trading session, making a lower low, while remaining in an upward. Support is seen near the 10-day moving average at 64.45.  Resistance is seen near the weekly highs at 66.66, and then the 50% retracement of the 112 decline to 26, which comes in near 69.17.  Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Japanese CPI Improved

Japan’s CPI improved to a 1.0% year over year pace in December from a 0.6% year over year pace in November. The core rate  grew 0.9% year over year in December after a matching gain in November. The growth rate of the national and core CPI came in as expected in December. Tokyo core CPI improved to a 1.3% year over year pace in January from a 1.0% year over year pace in December. The core Tokyo CPI slowed to a 0.7% year over year pace from 0.8%.

Canadian CPI Slowed

Canada CPI slowed to a 1.9% pace in December from the 2.1% year over year clip in November. The CPI fell 0.4% in December on a month comparable basis after the 0.3% bounce in November. The decline in annual growth rate was as expected while the month comparable loss came in slightly weaker than projected. Annual growth rates of the core measures were steady or faster. CPI-common rose 1.6% year over year in December after the 1.5% pace  in November. The CPI-median expanded 1.9% from 1.9% and CPI-trim improved to a 1.9% rate from 1.8%. In the January announcement, the BoC said that the current “close to 2 per cent” total CPI figures and core measures that are edging up are “consistent with diminishing slack in the economy.”

The U.S. Trade Deficit Widened

U.S. Advance goods trade deficit widened to -$71.6 billion, the widest since July 2008, versus the revised -$70.0 billion which was -$69.7 billion. Goods exports were up 2.7% to $137.6 versus the 3.3% gain to $134.0 which was revised from $133.7 billion, while imports increased 2.5% to $209.2 billion versus the prior 3.0% gain to $204.0 billion which was revised from $206.4 billion. Advance wholesale inventories were up 0.2 to $611.4 versus the 0.7% gain to $610.2 billion which was revised from $610.2 billion. Advance retail inventories rose 0.2% to $620.4 billion after edging up 0.1% to $619.0 billion.

U.S. GDP Grew Less than Expected by Internals Where Strong

The 2.6% Q4 GDP growth clip slightly undershot estimates due to big subtractions of $29.3 billion from inventories and $55.1 billion from trade, with huge gains of 13.9% for imports and 12.6% for exports, alongside modest upside surprises for consumption and government spending, which grew at respective rates of 3.8% and 3.0%. Fixed investment tracked assumptions with strength in residential investment and equipment spending. Final sales rose at the expected 3.2% rate in Q4, and we left our Q1 GDP estimate at 3.1%. The big Q4 inventory subtraction reversed the Q3 bounce, and we expect a further inventory unwind into Q1, leaving an anemic inventory path since Q1 of 2015 as high I/S ratios unwind rapidly. The tiny $9.2 billion Q4 accumulation rate should be followed by a liquidation rate in the $24 billion area in Q1, as final sales bounce with a tax cut boost to growth. Beyond inventories, the Q4 GDP figures show solid growth in consumption, investment in equipment and residential structures, and government purchases, with likely boosts from hurricane and fire rebuilding, alongside robust growth in both exports and imports with help from rebounding global growth.