Crude Oil Price Analysis for July 12, 2017

Crude was traded under pressure early, falling back below $44, but was unable to take out the prior days lows and rebounded into the North American close. WTI so far has managed to hold above the two-week low of $43.65 posted on Monday. Sellers emerged after Goldman Sachs said WTI crude could fall under $40 per barrel unless OPEC takes further steps to cut its output. Libya and Nigeria, not bound by production limits, may attend the next OPEC/NOPEC, with speculation rising that the two countries may be pressured to cap their output. Between increased Libya, Nigeria, and U.S. shale production, the OPEC/NOPEC cuts have largely been canceled out.

Technicals

Crude oil prices rebounded from session lows, forming support that is a pivot as it did not generate a lower low.  Prices are testing resistance near the 10-day moving average at $45.14.  Traders await the Department of Energy’s inventory report scheduled to be released on Wednesday. Positive momentum has decelerated as the MACD (moving average convergence divergence) histogram prints in the black with a declining trajectory which points to consolidation.

OPEC Monthly Report Will Be Released on Wednesday

Trader’s will be focused Wednesday on OPEC’s Monthly Oil Market Report for June. According to the latest currently available OPEC report with data for May, Saudi Arabia directly communicated to OPEC that its crude oil output in May was 9.880 million barrels a day. According to secondary sources, which the market is looking at, Saudi Arabia’s oil production in May was 9.940 million bpd.

Markets initially sold off on Tuesday following rumors that Saudi Arabia has told OPEC that it had pumped 10.07 million barrels per day in June, up by 190,000 barrels per day from May, and exceeding its 10.058-million barrels a day production level quota under the output cut deal. Under the OPEC/non-OPEC deal to cut production, Saudi Arabia pledged to take 486,000 barrels a day off its October 2016 level output and keep production at 10.058 million barrels per day.

The market will be watching closely OPEC’s data on Wednesday, but it typically gives production numbers, not exports. OPEC’s exports which includes exports from of Saudi Arabia jumped in June, and the cartel exported more crude in June than it did in October, while total global crude exports are over 10 percent higher than year-ago levels.  While exports did not go to the United States, growth in inventories in China shows that OPEC oil landed there. Optimism about crude oil demand in the coming weeks has helped prices to recover somewhat, but the sustainability of the improvement is highly uncertain.

U.S. Consumer Credit Surged in May

U.S. consumer credit surged $18.4 billion in May, following the upwardly revised $12.9 billion April gain which was $8.2 billion. Non-revolving credit continued to lead the strength, rising $11.0 billion versus $11.8 billion previously which was revised from $6.7 billion. Revolving credit increased $7.4 billion after edging up $1.2 billion in April which was revised from $1.5 billion. For Q1, credit climbed $45.5 billion which was revised from $47.5 billion and was up $57.8 billion in Q4 which was revised from $60.6 billion.

U.S. NFIB Index was Lower

U.S. NFIB small business optimism index fell to 103.6 in June from 104.5 in May. It’s the lowest since the 98.4 in November. The index was as high as 105.9 in January, which was the best since the 106.1 print from December 2004. The all-time high is 107.4 from November 2004. The percentage of firms reporting plans to hire fell to 15% from 18%. Expectations for a better economy fell to 33% from 39%. But those firms expecting to increase capex rose to 30% from 28%.

Canada’s Economy is Solid

Canada’s Financial Minister said the economy is “firing on all cylinders.” Morneau noted the real estate market is beginning to level off. As always, he refrained from commenting on the upcoming rate announcement from the BoC, saying that is the BoC’s “responsibility.” He was upbeat on the economy, saying that as it does better it puts people in a better situation to face whatever the challenges arise. The market is pricing in around a 90% chance of a 25 basis point rate hike on Wednesday.

Canada housing starts improved 9.1% to 212.7k in June from the 194.6k in May. The June starts pace overshot expectations of 200k but is not a shock given the volatile nature of this indicator. Single family starts rose to  80.1k unit growth rate in June from 73.4k in May. This is the final top tier report ahead of the BoC’s announcement Wednesday.