Crude Oil Price Analysis for June 19, 2017

Crude oil prices notched up its 4^th consecutive declining week, following by a larger than expected build in petroleum inventories, along with increasing rig counter and larger production for OPEC in May than expected.  Saudi Arabia announced that it would curtail shipments to a number of locations in Asia and slash exports to the United States.  Their goal now is to have the cuts in production show up in the U.S. government reports, creating a bullish tone, when the EIA reports its estimates for inventories in August.

Technicals

Crude oil prices edged higher and held support near an upward sloping trend line that comes in near $44.  Resistance on crude oil is seen near the 10-day moving average at $45.92, A break of support would likely lead to a test of the August 2016 lows at 39.20. Momentum on crude oil prices is negative as the MACD (moving average convergence divergence) histogram is printing in the red with a downward sloping trajectory which points to lower prices for crude oil.

Rigs increased for the 22^nd Consecutive Week

Active oil rigs increased for the 22^nd consecutive week according to Baker Hughes the Oil Service giant. The number of active oil and gas rigs in the United States rose again this week by 6, continuing the longest growth streak in oil and gas rig increases since at least 1987, which is the earliest date that Baker Hughes data is available. Baker Hughes also reported that last week, both the US and Canada saw significant increases in the number of active oil and gas rigs, up by 11 in the US and 33 in Canada. This week, Canada saw another large growth spurt, adding 27 rigs.

Rig Counts Increased for 22nd Consecutive Weeks

The number of oil rigs in operation increased by 6, while gas rigs increased by 1. Miscellaneous rigs decreased by 1 to 0. Combined, the total oil and gas rig count in the US now stands at 933 rigs, which is 509 rigs over a year ago today, when oil prices were significantly higher than they were today.

The Permian basin, which his were most of the activity is occur, has seen more than a 30% increase in the number of active oil and gas rigs over the last 22 weeks, saw no net increase in oil and gas rigs, while the Williston basin added 3 rigs. Still, the Permian basin boasts 222 rigs more than this time last year.

The rush of drillers to the Permian basin is causing some concern beyond stealing some of OPEC’s clout with eight hedge funds pulling more than $400 million in positions out of 10 oil and gas companies that are active in the Permian.

OPEC Output Increased in May

This week was tough for oil bulls. OPEC said in its Monthly Oil Market Report on Tuesday that its production increased in May compared to April, with exempt Libya and Nigeria leading the output gains, followed by non-complying Iraq. This comes despite 1.8 million barrel a day cut that was underway. The cartel admitted that “rebalancing of the market is underway, but at a slower pace, given the changes in fundamentals since December, especially the shift in US supply from an expected contraction to positive growth.”

To add insult to injury, on Wednesday the EIA announced that crude oil inventories declined less than expected, dropping by 1.7 million barrels compared to the 3-million-barrel decline expected by analysts. On top of that, the EIA reported a worrying increase in gasoline inventories.

Additionally, cut-exempt Libya said that it was targeting production of 1 million bpd by end of July, putting further pressure on the fear of continuously rising global supply, and not only from U.S. shale.

Canada Saw Increase Investment Flow

Canada saw a C$10.6 billion investment inflow from abroad in April after the C$15.1 billion inflow in March. The purchase of government debt instruments was the drive of the total inflow bond acquisitions totaled C$13.0 billion, with C$6.7 billion put in federal government bonds. There was also a C$4.3 billion investment in private corporate bonds. Long term rates fell 11 bps in April, Stats Can notes, which was the third straight decline. Flows are likely to see a sizable shift in June given the sharp back-up in yields this week after the BoC’s hawkish outing moved-up expectations for the beginning of rate increases to this year. Meanwhile, Canadians cut their holding of foreign securities by C$9.9 billion in April, the largest reduction since January of last year according to Statistics Canada.