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Crude Oil Price Analysis for July 25, 2017

By:
David Becker
Published: Jul 24, 2017, 18:54 UTC

WTI crude futures were up 1.3%, at $46.38. The front-month contract closed near its highs, which was just shy of a 50% retracement of Friday's 2.5%-odd

Crude Oil

WTI crude futures were up 1.3%, at $46.38. The front-month contract closed near its highs, which was just shy of a 50% retracement of Friday’s 2.5%-odd decline. Saudi’s oil minister said earlier that his country may curtail output to 6.6 million barrels per day during August, which would be nearly 1 million below the production seen during August of last year. The minister also suggested that the prevailing OPEC-led supply commitment could be extended beyond the currently agreed end date of March next year, and that Nigeria has signaled that it is ready to consider joining the agreement on output quotes (Nigeria and Libya are OPEC members that are presently exempt from the supply accord). His remarks follow a meeting of OPEC and other major oil producing nations in St. Petersburg.

Technicals

Crude oil prices rebounded from Friday drop, as traders attempt to assess the outcome of the OPEC meeting in Russia. What is clear is that Saudi Arabia is attempting to alter inventory number in the United States by reducing exports.  Prices recapture the 10-day moving average which is seen as short term support near 46.31. Additional support is seen near an upward sloping trend line at 45.70.  Resistance is seen near a downward sloping trend line near 47.50.  Positive momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the black with a downward sloping trajectory which points to lower prices for crude oil.

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The Dollar is Easing Buoying Crude oil

U.S. existing home sales dropped 1.8% to 5.52 million in June after rebounding 1.1% in May to 5.62 million after tumbling 2.5% in April to 5.56 million. The weakness was in the single family sales component which slid 2.0% versus the 1.0% increase previously. Condo/coop sales were flat after climbing 1.6% in May. Sales tumbled in the South (-4.7%), the Northeast (-2.6%) and the West (-0.8%), but rose in the Midwest (3.1%). The months’ supply rose to 4.3 from 4.2. The median sales price rose to a new record high of $263,800 from $252,500 (revised from $252,800), and is up 6.5% year over year. The strength in prices is largely a function of a lack of inventory.

Fed Policy Outlook

The chances are between slim and none for a rate hike at this week’s FOMC meeting, according to implied Fed funds futures. Additionally, risks for a third tightening this year have eroded to only about 40% since weak data, especially on inflation, and a cautious tone from Yellen, suggested the Fed might remain sidelined this year. Additionally, the Fed may use the “excuse” of balance sheet normalization to delay the next action on rates. We still believe the FOMC will boost the rate band again, but not until December, when policymakers should have more evidence on growth and as inflation should have made some, albeit slight, upside progress.

Canadian Wholesale Shipments Grew in May

Canada wholesale shipment values grew 0.9% in May after a revised 0.8% gain in April (was +1.0%). The increase in May was slightly firmer than expected, but not a shock given the solid tone to the manufacturing and retail trade reports. Wholesale sales grew in six of the seven subsectors that comprise the report. A 2.6% increase in the miscellaneous subsector and a 1.4% rise in the motor vehicle and parts subsector led the way. Total wholesale shipment volumes grew 0.8% m/m in May, supportive of our 0.2% estimate for monthly GDP.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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