Crude Oil Price Analysis for June 1, 2017

WTI dropped 2.90% on Wednesday, closing off the session lows as the potential for rising Libyan production, weighed on prices.  Traders are focusing on a statement by Libyan Nation Oil Corporation that it is expected oil production to rise to 800k barrels this week and on shipping data that shines a light on a jump in Libyan crude shipments. This, along with rising U.S. shale production, is offsetting last week’s OPEC-led plan to extend the 1.8 million barrel-per-day supply cut.  Traders await Thursday inventory report from the Department of Energy that is delayed one day because of the Memorial Day Holiday.  Additionally, it appears that Saudi Arabia and Russia are determined drive inventories back into balance.

Technicals

Crude oil prices tumbled, makes a lower high and lower low which describes a downtrend. Resistance on WTI is seen near the 10-day moving average at 50.02. Additional resistance is seen at the top end of the range capped by the 200-day moving average at 52.02.  Support on crude oil is seen near the April lows at 48, and then the May lows at 44.17.  Prices are continuing to chop around in a topping pattern. Prices will need to take out the 52 level to have a chance at a new uptrend.

Momentum is turning negative. The MACD (moving average convergence divergence) is poised to generate a crossover sell signal. This occurs as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses below the 9-day exponential moving average of the spread. The MACD index, shows that slow of the MACD, and this is moving lower, which reflects the high likelihood that the MACD will cross the MACD signal line. The trajectory is negative, which reflects accelerating negative momentum.  The RSI (relative strength index) broke through support, and also has a topping pattern, which reflects accelerating negative momentum.

OPEC is Determined to Balance Inventories

OPEC and non-OPEC producers that are participating in the output production cut are determined on reducing the global crude oil inventories down to their five-year average, Saudi Energy Minister Khalid al-Falih said on Wednesday after meeting with his Russian counterpart Alexander Novak.  Saudi Araian and Russia are willing to do whatever it takes to boost oil prices as investors are attempting to determine whether OPEC cuts could reduce stubbornly high supply. The goal to cut oil inventories down to the industry’s five-year average will be reached in the very near future, al-Falih said in Moscow on Wednesday.

“Our joint declaration with Russia concluded that while the rebalancing goal is on its way to being achieved, more needed to be done to draw inventories towards the five-year average,” al-Falih said.

“I attended a meeting of the Saudi and Russian leadership at the Kremlin during which both our nations renewed their determination to rebalance the global crude oil market in the interest of greater market stability and restated our commitment to doing whatever it takes to attain those goals.” Both the Saudi and Russian ministers said that their cooperation in oil markets should continue after the OPEC/non-OPEC production cuts period expires in March 2018.

The joint actions in cutting oil production have turned a new page in the cooperation between OPEC and non-OPEC countries, Novak said. Saudi Arabia and Russia proposed the cuts beyond the prior deadline of June until March 2018. OPEC did indeed agree to extend the cuts for another nine months, but the oil market remained unimpressed with that decision.

The Fed Discount Minutes Show There Were 2-Descents

A stronger dollar is usually negative for oil prices, as oil is quoted in U.S. currency.  The stronger the dollar the more expensive it is to purchase oil in another currency.  If the Fed moves forward with a rate hike in June, the dollar will get stronger and crude will have an easier path going lower.  The Fed’s discount minutes showed 10 of 12 directors voting for a steady rate of 1.50% on April 27, after voting unanimously for that stance on March 27. The remaining two banks, Richmond and KC voted for a 25-basis point hike to 1.75% last month. Remember those are two of the most hawkish banks in the Fed system. Overall the directors generally saw the economy continuing to expand amid greater optimism among households and businesses.