Crude Oil Price Analysis for July 21, 2017

Crude rallied to $47.55, a two-week high, from $46.67 following the EIA inventory data which showed a 4.7-million-barrel fall in crude stocks. The street had been expecting a 2.5-million-barrel decrease, though the API reported a surprise 1.6 million stock build after the close on Tuesday. Meanwhile, gasoline supplies, seen down 0.5 million barrels actually fell 4.4 million barrels, while distillate stocks were down 2.1 million barrels, versus expectations for a 1.0-million-barrel fall. Refinery usage fell to 94.0% from 94.5%.  The bullish report was only able to hold up crude oil until mid-morning, but prices reversed closing near the lows of the session.

Technicals

Crude oil prices generated an outside day which is a reversal pattern, that has a higher high a lower low and a lower close.  A close on the low is specifically negative. Support on crude oil prices is seen near the 10-day moving average at 45.80, while resistance is seen at the July highs at 47.55. Momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to lower prices.

U.S. Data Remains Mixed

There continues to be mixed U.S. economic data which has allowed the dollar to slide. While jobs data seems to be strong, manufacturing is slipping. The U.S. Philly Fed manufacturing index slid 8.1 points to 19.5 in July, weaker than expected, after falling 11.2 points to 27.6 in June, and it more than erases the 16.8 increase to 38.8 in May. The index is down from the 3-year high of 43.3 high set in February, though it’s still considerably firmer than the 8.7 in November. Weakness was broad-based. The employment component extended its slid to 10.9 from 16.1, and was at 19.9 in April. The workweek plunged to 3.8 from 20.5. New orders also declined to 2.1 from 25.9. Prices paid fell to 19.1 versus 23.6, with prices received at 9.0 from 20.6. But, the six-month outlook data showed the general business activity index rose to 36.9 from 31.3, with employment at 27.0 from 30.0, new orders at 39.4 from 31.9, prices paid at 46.6 from 40.9, with prices received at 29.7 from 28.7.

Jobless Claims Drop

U.S. initial jobless claims dropped 15k to 233k in the week ended July 15 after dipping 2k to 248k in the July 8 week which was revised from 247k. That brought the 4-week moving average to 243.75k from 246k (revised from 245.75k). Continuing claims bounced 28k to 1,977k after tumbling 16k to 1,949k (revised from 1,945k). The BLS said no states estimated claims.

Despite a falling Dollar, crude oil prices moved lower. The dollar was under pressure following the ECB’s mixed signals that were taken as hawkish. Draghi repeated the easing bias on QE remains in place , and that despite the broadening of the recovery, headline inflation pressures remain subdued and economic expansion has yet to feed through to prices. Against that background a very substantial degree of accommodation is still needed even if incoming data confirm the strengthening of the economy. Draghi also said that the ECB measures preserve the favorable conditions that are needed, which confirms that despite the fact that the easing bias on rates remains in place, the ECB is unlikely to add additional measures.  He did mention that the ECB will evaluate QE in the fall.

The BoJ Kept Policy Unchanged

The Bank of Japan kept interest rates and quantitative easing unchanged even as it pushed back the projected timing for reaching 2% inflation. The central bank downgraded price outlook will raise more questions about the sustainability of the BOJ’s stimulus at time when other major central banks are turning toward normalizing their monetary policy.

UK Retail Sales Rebounded

UK retail sales rebounded more than expected in June, aided by a warm-weather prompted rush on seasonal items. The headline sales figure rose 0.6% month over month, rebounding from a 1.2% month over month contraction in May, which was the biggest negative print in four years. The year over year figure rose 2.9%, up from a 0.9% year over year gain in the month prior. Negative real wage growth is likely to keep continue to damper the performance of the retail sector in the months ahead.