Crude Oil Price Analysis for July 7, 2017

Crude oil prices moved lower on Thursday despite a bullish report that showed a larger than expected draw in crude oil inventories.  Despite the drop in stocks, prices edged lower as traders took profits following the latest rebound.  Imports declined, which should be expected given the recent statement from Saudi Arabia were the OPEC member said it would curtail exports to the United States. Gasoline demand remains softer than last year, but at elevated levels.’

Technicals

Crude oil prices were unable to take out resistance and generated an inside day which is one that reflects indecision.  A lower high and a higher low, means traders are waiting for a new catalyst.  Resistance is seen near the 50-day moving average at 47.18, while support is seen near the 10-day moving average at 44.91.  Positive momentum is decelerating, as the MACD (moving average convergence divergence) index prints in the black while the MACD histogram is turning lower which reflects consolidation.

Imports Decline

The Energy Information Administration reported that U.S. crude oil imports averaged over 7.7 million barrels per day last week, down by 274,000 barrels per day from the previous week. The decline is a reflecting of the projected cut off in exports discussed by the Saudi’s in late June.

Inventories Contract

The decline in imports led to a drop in inventories. The EAI reported that U.S. commercial crude oil inventories decreased by 6.3 million barrels from the previous week. Gasoline inventories decreased by 3.7 million barrels last week, and distillate fuel inventories decreased by 1.9 million barrels last week Total commercial petroleum inventories decreased by a whopping 13.4 million barrels last week.

Demand Remains Subdued

Demand remains subdued.  The EIA reported that total products supplied over the last four-week period averaged over 20.6 million barrels per day, up by 0.5% from the same period last year. Over the last month, gasoline demand averaged 9.6 million barrels per day, down by 1.8% from the same period last year. Distillate fuel demand averaged over 4.1 million barrels per day over the last four weeks, up by 5.8% from the same period last year.

U.S. crude oil refinery inputs averaged over 17.1 million barrels per day during the week ending June 30, 2017, 251,000 barrels per day more than the previous week’s average. Refineries operated at 93.6% of their operable capacity last week. Gasoline production increased last week, averaging about 10.4 million barrels per day. Distillate fuel production decreased last week, averaging 5.1 million barrels per day.

API data showed U.S. crude inventories fell more sharply than expected in the latest reporting week, by 5.8 million barrels. The median forecast had been for a more limited draw of 2.3 million barrels. The weekly data is unlikely to put much of a dent in the global oversupply narrative, with data this week showing OECD total oil inventories unexpectedly remaining above 3 billion barrels in the face of rising supply out of the Nigeria, Libya and the U.S.

Canada’s trade deficit worsened to -C$1.09 billion in May from a revised -C$0.55 billion in April which was -C$0.37 billion. Export values grew 1.3% m/m in May while import values expanded 2.4%. The gain in imports was due to growth in other transport equipment and parts, motor vehicle parts and energy products. The May gain was the sixth straight improvement in total import values. Exports were driven by growth in metallic/non-metallic mineral products and motor vehicles. Notably, the growth in metallic/non-metallic shipments was due to exports of unwrought gold to the U.K., with Statistics Canada saying most of those shipments were transfers of assets in the banking sector.

U.S. Challenger reported announced layoffs fell 2.0k in June  following a 3.5k drop in May and a 6.7k slide in April. On an annual basis, planned job cuts are down 19.3% year over year, versus a 9.7% increase previously. According to the report, the pace of job cuts is down significantly versus the first half of 2016 as companies are retaining much of their existing workforce while awaiting fiscal policy clarity. That’s another sign of tight labor market conditions. June announced hiring’s declined 37.4K after rising 15.9k in May.