Crude Oil Price Analysis for January 31, 2018

Crude prices are down for a second straight day, dropping slightly more than 1.5%. A low was logged earlier at $64.10, which is the lowest level seen since last Wednesday. The rebound reflects a fresh bout of dollar selling. Signs of rising U.S. production, coupled with the drag of near record levels of speculative long positioning have been weighing on crude prices. President Trump give his States of the Union address on Tuesday where he is expected to focus on an infrastructure plan.

Technicals

Crude oil prices moved lower on Tuesday but closed off the lows of the trading session, but below resistance near former support which was an upward sloping trend line that coincides with the 10-day moving average near 64.66. Target support is seen near this week’s lows at $64.10. Resistance is former support. Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

President Trump’s States of the Union with Focus on Infrastructure

President Trump’s State of the Union is going to stress infrastructure spending according to White House economic advisor Gary Cohn in comments in a CNBC interview. The president will emphasize in tonight’s address a better than $1 trillion infrastructure plan, as well as a process to streamline the approval process. Cohn said there’s plenty of money to finance the spending plan and a lot of the problems come with the approval process. The president will also talk about the wealth effect and how people are benefiting from the gains on Wall Street. He expects there will be a lot more regulation reforms than seen in year one. Also, he noted the search for a Fed Vice Chair should end relatively shortly, without indicating who it might be.

Chain Store Sales Rose

U.S. chain store sales rose 1.1% in the January 27 week, after rebounding 0.1% previously following the 1.9% drop in the January 13 week. However, the 12-month pace slowed to 2.2% year over year versus 3.4% year over year, and was as strong as 3.9% year over year at the end of December. Dollar stores were the strongest retail sector, along with traditional grocery stores.

Iraq Will Begin Exporting

Iraq will begin exporting next week 60,000 barrels of oil from the fields in Kirkuk to an Iranian refinery across the border via tanker trucks, in exchange for refined oil for southern Iraq, the acting director general of Iraq’s state oil marketing company SOMO. Until recently, oil from the fields around Kirkuk was shipped to the Turkish port of Ceyhan via a pipeline owned and operated by the Kurdistan Regional Government. However, after the September independence referendum in Kurdistan, Iraqi troops took control of disputed Kirkuk, which falls outside of the autonomous region’s boundaries, and the surrounding fields.

Last month, Iraq and Iran agreed on an oil swap deal that will run for one year and is subject to renegotiation, Iraq’s Oil Minister Jabbar al Luiebi said. The deal envisages the swap of up to 60,000 bpd of crude oil, with the Iraqi oil coming from the Kirkuk field in northern Iraq.

Eurozone ESE Confidence Dropped

Eurozone ESI economic confidence unexpectedly plunged to 114.7 in January, while December was revised down to 115.3 from 116.0 reported initially. Expectations had been for a slight improvement in the headline number after better than anticipated composite PMI readings and the sharp decline, which mainly reflects a slump in services confidence will add to the arguments of the doves at the ECB, which continue to argue that the robust growth pattern remains reliant on ongoing monetary support. Consumer confidence was confirmed at 1.3, markedly higher than in December, while industrial confidence held steady over the month.

German State Inflation was Lower than Expected

German state inflation mostly lower than anticipated. Preliminary January inflation numbers from 6 German states have been mixed, with one state reporting an acceleration in the headline rate, four reporting a deceleration, and NRW, which accounts for nearly 25% showing a stable annual rate of 1.5% year over year.

UK December Lending Show Weak Mortgage Approvals

UK December lending data revealed weakness in mortgage approvals, which fell to a cycle low of 61.0k, the weakness since January 2015, after 64.7k in the month prior. The median forecast had been for a more moderate decline to 63.5k. The drop portends an abatement in demand for residential property several months down the track. The data follows figures from UK Finance last week showing mortgage approvals to be at their weakest level in nearly five years. Rising inflation and an erosion in real household incomes over the last year have had a crimping impact on demand.