Crude Oil Price Analysis for July 14, 2017

Crude oil prices continued to rebound for a second straight trading session, gaining some of the losses experienced late in Wednesday session.  A larger than expected draw in crude oil inventories reported on Wednesday by the Department of Energy, failed to buoy prices. The International Energy Agency (IEA) now expects demand to grow, which helped buoy prices.

Technicals

Crude oil prices rebounded more than 1.1% on Thursday, but remains in a tight range, forming a wedge. Resistance is seen near a downward sloping trend line that comes in near 446.40, while support is seen near an upward sloping trend line that comes in near $44.40. Momentum is neutral as the MACD (moving average convergence divergence) index prints near the zero-index level with a flat trajectory which reflects consolidation. The RSI (relative strength index) moved higher with prices action reflecting accelerating positive momentum.

IEA Expects an Increase in Global Demand

The IEA said it now expects global demand to grow by 1.5% this year to 98 million barrels a day, driven in part by rising consumption in Germany and the U.S. during the second quarter. The Paris-based agency 2017 demand forecast by 100,000 barrels a day, compared with a previous estimate last month, while predicting “similarly paced” growth for 2018.

Global demand growth hit a three-year low of 1 million barrels a day during the first quarter of the year, with overall demand rising to 96.5 million barrels a day. Demand accelerated in the Q2, growing to 97.4 million barrels a day, 1.5 million barrels a day faster than in second quarter of 2016.

The more robust demand outlook hasn’t yet helped OPEC, with members that control roughly 40% of global crude output, in its efforts to manage a global oil glut that has weighed heavily on the market. Large amounts of oil in storage have kept prices between $45 and $55 a barrel for much of the past year. In addition to unexpected demand in Germany and the U.S., a recovery in demand growth in India continued into May and Chinese apparent demand “rebounded strongly” during that month, the IEA said. China, one of the world’s largest consumers of crude, had seen demand slow earlier in the year amid weakening economic conditions, holding back global growth.

The IEA said the initial demand data could suggest the market is moving toward supply and demand equilibrium. But the agency cautioned: “We need to wait a little longer to confirm if the process of rebalancing has actually started in [the second quarter] and if the waning confidence shown by investors is justified or not.”

Canada’s New Home Prices Increased in May

Canada’s new home price index grew 0.7% in May after the 0.8% month over month rise in April. The index grew at a 3.8% year over year pace in May versus the 3.9% clip in April. Toronto and Vancouver were the drives of the increase in the new home price index. Toronto was the largest contributor, with prices up 1.1% month over month in May. According to Statistics Canada, builders cited market conditions and a shortage of developed land and higher construction costs. Vancouver home prices climbed 2.2% month over month in May, the largest one-month gain since May of 2017. Favorable market conditions were behind the increase. While broadening growth and the temporary nature of the tame inflation backdrop drove the BoC’s decision to hike rates yesterday, financial stability consideration was also in play. This is yet another report showing strong price growth in the “hot” regions.

Jobless Claims Unexpectedly Declined

The 3k U.S. initial claims downtick to a still-elevated 247k in the week of the July 4th holiday trimmed the 6k rise to 250k in the prior week to still defy the usual July down-tilt from auto retooling. Despite the rise, claims have undershot the 2016 average of 263k in every week of 2017. Claims are averaging 247k in July, following lean prior averages of 243k in June, 241k in May, and 243k in April. Next week’s BLS survey week reading should lie within the mix of recent survey week readings of 242k in June, 233k in May, and 243k in April, though the recent up-tilt may imply an overshoot.

Continuing claims have risen into the summer from a cycle-low in early-May, leaving a summer stalling as seen in six of the last seven years. There was a stalling in continuing claims improvement this winter, as occurred over the prior two years. Our 190k July nonfarm payroll estimate lies near the 194k Q2 average, though above the lean 166k Q1 average.