Crude Oil Price Analysis for July 20, 2017

Crude oil prices closed at a 6-week high, surging following a report from the Department of Energy that showed a larger than expected draw in total petroleum inventories.  Prices were higher going into the trading session, following Tuesday’s bullish inventory report from the American Petroleum Institute (API).  Demand is picking up, and while gasoline demand has still not eclipsed 2016 levels, distillate demand continues to expand.

Technicals

Crude oil broke out testing resistance near the June highs at 47.22, and closing at a 6-week high.  Target resistance is seen near a downward sloping trend line that connects the highs in April to the highs in May and comes in near 49.  Support is seen near the 10-day moving average at 45.69. Momentum remains 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. The RSI (relative strength index) broke out which reflects accelerating positive momentum.

Crude oil surged following a larger than expected draw in total petroleum, which saw draws in all three major products, including crude, gasoline, and distillates.  While imports were higher during the past week, imports over the past month were down nearly 2% on average. It appears that the Saudi approach, which is reducing exports to the U.S. is now showing up in the Department of Energy numbers, which is helping crude oil prices gain traction.

Inventories Dropped

The Department of Energy reported on Wednesday that U.S. crude oil imports averaged 7.8 million barrels per day during the past month which is down 1.7% month over month. The overall decline in imports has not been offset by increases in production which rose by 30K barrels domestically in the United States during the past week.

The decline in imports lead to a drop-in crude oil stocks, as demand for total products increased. The Energy Information Administration reported that crude oil inventories decreased by 4.7 million barrels from the previous week. Additionally, gasoline inventories decreased by 4.4 million barrels last week, while distillate fuel inventories decreased by 2.1 million barrels last week. The EIA reported that total commercial petroleum inventories decreased by 10.2 million barrels last week.

Demand in aggregate remains robust, but gasoline demand has yet to eclipse 2016 levels. Total product demand over the past month averaged about 20.8 million barrels per day, up by 2.1% from the same period last year. Gasoline demand over the past month averaged about 9.7 million barrels per day, down by 0.8%. Distillate fuel demand remains very strong averaging over 4.1 million barrels per day over the past month up by 9.9% from the same period last year. Jet fuel demand is up 5.6% compared to the same month last year.

U.S. crude oil refinery inputs averaged over 17.1 million barrels per day during the week ending July 14, 2017, 125,000 barrels per day less than the previous week’s average. Refineries operated at 94.0% of their operable capacity last week. Gasoline production decreased last week, averaging 10.1 million barrels per day. Distillate fuel production decreased last week, averaging over 4.9 million barrels per day.

API Data Showed an Unexpected Draw in Gasoline

The API data, released on Tuesday evening, showed that while U.S. inventories of crude rose by 1.6 million barrels in the latest reporting week, gasoline stocks dove by an outsized 5.4 million barrels. New data out of Libya and Nigeria, meanwhile, is showing that supply from these countries continues to rise, with August loading schedules for the latter, for instance, rising to over 2 million barrels per day.

Imports could further decline if the United States halts imports from Venezuela. The Trump administration is mulling over sanctions against senior Venezuelan government officials, and additional measures could include sanctions against the country’s oil industry, such as halting imports into the U.S.

The goal of the sanctions is to prevent the Nicolas Maduro government from having things its way at a July 30 election for a Constituent Assembly that, the U.S. administration believes, would serve to cement Maduro’s power and turn Venezuela into a “full dictatorship.” The Constitutional Assembly vote was proposed by the government as a means of tackling the political crisis that Venezuela slid into last year, after the election of a new parliament where the opposition had a majority that put it at odds with the government.