Crude Oil Price Analysis for July 18, 2017

Crude oil prices whipsawed closing at session lows, after generating a fresh high and breaking out on Friday.  Crude had held up near recent highs, trading to $46.86 highs before moving lower into the lcose. Support has come recently from reports that demand is expected to rise through the second half of the year, specifically from China. This said, ongoing U.S. shale production increases, and upped output from Libya and Nigeria, will counteract it a degree, and likely limit price gains going forward.

Technicals

After hitting a fresh high, oil reverse course closing at session lows after generating a lower low which is considered an outside day.  Prices has broken out above trend line support, only to move back into a very tight range declining slightly more than 1% on the day. Support is seen near the 10-day moving average at 45.55. Resistance is seen near the 47.22 level. Momentum is steady and turning neutral as the MACD (moving average convergence divergence) histogram prints dint he black with a flattening trajectory which reflects consolidation.

U.S. Chinese refineries are buying crude at accelerated rates.  Refineries processed 11.21 million barrels per day of crude oil last month, up 2.3% on the year and the second-highest daily processing rate on record, citing data from the country’s National Bureau of Statistics. The highest daily rate was hit last December, when refineries processed 11.26 million barrels per day. The increase came on the back of new import quotas that Beijing awarded to independent refineries, commonly known as teapots. The throughput of state-owned refineries in June stayed relatively unchanged from last year. An Energy Aspects analyst, Nevyn Nah, commented that the June throughput figures were impressive in the context of continuing maintenance.

Now China’s refiners are preparing for a cut in fuel and other oil products output in the third quarter, which is also part of the reason for the increase. Over the first half of the year, Chinese refiners processed about 11.1 million bpd of crude, up 3% percent on the first six months of 2016.China imported 8.79 million barrels of crude daily last month, up 17.9% on an annual basis, though 2.9% less than the May daily import rate. The strong figures provided much needed support for international prices, as domestic oil production continued declining while demand remained healthy thanks to oil prices remaining below US$50 a barrel, and according to one analyst from Sanford C. Bernstein, to an increase in the sales of SUVs.

The BOJ Meeting Could Generate Volatility

The BoJ meeting is scheduled for Wednesday and Thursday will be a focal point given the world-wide interest in all things central banking. No changes in policy are expected in either rates or stimulus. The Bank may, however, downgrade its inflation outlook, while upping expectations for the economy, consistent with recent global patters and according to recent market chatter. Data includes the June trade report. The market expects the balance to flip to a JPY 500.0 billion surplus, from the JPY 204.2 billion shortfall in May. The softer yen likely supported a bounce in exports after three months of weakness.

China GDP Increased More than Expected

China’s gross domestic product increased 6.9% in the Q2 on a year over year basis matching the results posted in the Q1, according to the National Bureau of Statistics. The number beat expectations of an increase of 6.8%. China saw larger than expected trade numbers last week, which gave some insight into the GDP report.  The second quarter numbers put the economy on a strong footing to meet China’s growth target of around 6.5% in 2017, which would give policymakers room to defuse financial risks.

U.S. Empire Manufacturing Dropped More than Expected

U.S. Empire State manufacturing index dropped 10.0 points to 9.8 in July, lower than expected, after rebounding 20.8 points to 19.8 in June. The latter was the highest since September 2014. Declines were broad-based. The employment component fell for a third consecutive month, sliding to 3.9 from 7.7, with the workweek at unchanged from 8.5. New orders fell to 13.3 from 18.1. But, prices paid edged up to 21.3 from 20.0, with prices received at 11.0 from 10.8. The 6-month general business outlook index eased to 34.9 from 41.7, with employment at 11.8 from 12.3. The future new order index was 33.4 from 42.2, with prices paid at 30.7 from 33.1 and prices received at 15.7 from 13.8. Capital expenditures are at 15.0 from 20.8, with technology spending at 11.8 from 11.5.