Crude Oil Price Analysis for July 10, 2017

The oil price rally that rolled into Thursday reversed course on Friday. Crude prices surged on the EIA report on Thursday showing a significant drawdown in crude inventories. Oil storage dipped by 6.3 million barrels and gasoline inventories fell by 3.7 million barrels. But by Friday the markets turned their eyes back on the news from OPEC showing a recent surge in oil exports. U.S. oil production also rebounded after dipping last week. Crude benchmarks sank on the news.

Technicals

Oil prices dropped 2.83%, falling  below short term support which is now resistance near the 10-day moving average at 44.76.  Target support is now seen near the June lows at 42 dollar per barrel.  Positive momentum is now decelerating as the MACD (moving average convergence divergence) histogram is printing in the black with a downward sloping trajectory which points to consolidation.

U.S. Oil Production Increases

The growth in oil production was fueled primarily by greater production in North Dakota and Texas, with the increase in operating oil rigs in tight oil plays. U.S. oil exports are higher than they have been in recent memory and a growing volume of American crude is making its way to China. China has imported an average of 100,000 barrels per day from the U.S. for much of 2017, with imports jumping to 180,000 barrels per day in May.

U.S. Oil Imports Declined

The Energy Information Administration reported that U.S. crude oil imports averaged over 7.7 million barrels per day last week, down by 274,000 barrels per day from the previous week. The decline is a reflecting of the projected cut off in exports discussed by the Saudi’s in late June.

Inventories Contracted According to the Department of Energy

The decline in imports led to a drop in inventories. The EAI reported that U.S. commercial crude oil inventories decreased by 6.3 million barrels from the previous week. Gasoline inventories decreased by 3.7 million barrels last week, and distillate fuel inventories decreased by 1.9 million barrels last week Total commercial petroleum inventories decreased by a whopping 13.4 million barrels last week.

Product Demand is Subdued

Demand remains subdued.  The EIA reported that total products supplied over the last four-week period averaged over 20.6 million barrels per day, up by 0.5% from the same period last year. Over the last month, gasoline demand averaged 9.6 million barrels per day, down by 1.8% from the same period last year. Distillate fuel demand averaged over 4.1 million barrels per day over the last four weeks, up by 5.8% from the same period last year.

U.S. crude oil refinery inputs averaged over 17.1 million barrels per day during the week ending June 30, 2017, 251,000 barrels per day more than the previous week’s average. Refineries operated at 93.6% of their operable capacity last week. Gasoline production increased last week, averaging about 10.4 million barrels per day. Distillate fuel production decreased last week, averaging 5.1 million barrels per day.

API Data Showed a Large Decline in Inventories

API data showed U.S. crude inventories fell more sharply than expected in the latest reporting week, by 5.8 million barrels. The median forecast had been for a more limited draw of 2.3 million barrels. The weekly data is unlikely to put much of a dent in the global oversupply narrative, with data this week showing OECD total oil inventories unexpectedly remaining above 3 billion barrels in the face of rising supply out of the Nigeria, Libya and the U.S.

Jobs Data was Better Than Expected

The U.S. jobs report beat estimates with a 222k June payroll rise after 47k in upward revisions, and a 0.5% June surge in hours-worked with a workweek rise to 34.5, after big boosts for both back in April that lifted Q2 averages. There was a 245k civilian job pop with a 361k labor force surge that left a jobless rate rise to 4.36%, and a participation rate rise to 62.8%. There were gains across the bellwether goods sector’s jobs and hours-worked data, as goods sector jobs rose 25k, with gains of 1k for factories, 16k for construction, and 8k for mining, alongside hours-worked gains of 0.2% for both factories and construction, and 0.5% for mining.