Crude Oil Price Analysis for July 17, 2017

Crude oil prices moved higher on Friday buoyed by news from the International Energy Agency that global demand for oil will increase this year. A force majeure by Shell on Bonny Light which is like WTI also gave a lift to prices.  Baker Hughes reported a small increase in oil rigs, while the dollar eased helping prices climb following softer than expected U.S. Retail Sales and Consumer Prices.

Technicals

Crude oil prices broke out of a tight range but remain in a broad band. Resistance is seen near the July highs at $47.32. Support is seen near former resistance which is a downward sloping trend line that was the breakout level at 46.30.  Additional support is seen near the 10-day moving average at $45.55. Momentum has turned positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices for crude oil.

A Declining Dollar Helped Crude Oil Gain Traction

The dollar eased, which helps buoy crude oil prices since oil is quoted in dollars. As the dollar sinks, consumers need few amounts of other currencies to purchase crude oil. The recent U.S. data which includes Retail Sales and CPI will support a pause in Fed normalization. Any thoughts that the Fed will hike rates in September, have been slashed away by the markets. The Fed will begin to unwind its balance sheet in October, which still will be a form of quantitative tightening.

Active Rigs Increased Again

According to Baker Hughes, the Oil Service giant, the number of active oil and gas rigs in the United States was flat this week overall, after gaining 505 rigs in the last 12 months. But on the oil side, the number of rigs still increased, by 2, while gas rigs decreased by 2 for a net growth of zero. Combined, the total oil and gas rig count in the US now stands at 952 rigs.

Chinese Trade Data was Positive

China June trade data beat expectations, with imports up 17.2% year over year, while the details showed that Chinese imports of iron ore, were on course to exceed 1 billion metric tons, which would surpass the 2016 record. In June, exports from the world’s second largest economy posted a 11.3% increase year over year, compared to expectations of a 8.7% increase. Import rose 17.2% in dollar terms, compared to expectations of a 13.1% rise. That left China with a trade balance of $42.77 billion for the month, higher than expectations of $42.44 billion. China had a $25.4 billion trade surplus with the United States in June, up from $22.0 billion in May. The surplus with the U.S. was China’s highest since October 2015, when it was $25.5 billion.

Japanese Industrial Production Declined

Japan’s industrial production declined more than expected in June, allowing the yen to gain traction, and giving a boost to the Nikkei according to the Ministry of Economy, Trade and Industry. Industrial output fell 3.6% month over month compared to a decline of 3.3%. Production advanced 6.5% year over year. The monthly decline in shipments was revised to 2.9% percent from 2.8% percent. Inventories remained stable, in contrast to the initially estimated 0.1% percent increase. The inventory ratio came in at -1.9%, unchanged from the initial estimate. The capacity utilization rate declined by adjusted 4.1% month over month in May.

U.S. CPI was Softer than Expected

U.S. CPI was flat in June, with the core up 0.1%, as we forecast, following a 0.1% dip in the May headline, and a 0.1% gain in the ex-food and energy component. Compared to last June, overall prices slowed to a 1.6% year over year clip from 1.9% year over year, while the core rate was steady at 1.7% year over year. Energy prices declined another 1.6% from -2.7% previously and have dropped in four of the six months of 2017. Most of the decline was for gasoline which has continued to see softening demand despite stable to lower prices.  Transportation slipped 0.7%, and commodities were down 0.3%. Tobacco costs fell 0.4%. Services costs edged up 0.2%. Housing was up 0.1%, with the owners’ equivalent rent measure up 0.3%. Apparel dipped 0.1%. Medical care costs rose 0.4%.