Crude Oil Price Analysis for June 2, 2017

WTI climbed higher on Wednesday following a larger than expected draw in inventories topping at $49.17, but was unable to close on it’s higher and generated an inside day which reflects indecision.  The  API reported a larger than expected 8.7 million barrel draw in U.S. oil inventories. But this was somewhat offset by China’s sub-50 manufacturing PMI which dented oil sentiment to a degree, taking prices back to $48.67 level, while the global oversupply story remains a weight on prices.

Technicals

Crude oil prices traded in a tight range, above support near yesterday’s lows at 47.73, and below the 10-day moving average at 49.96.  Momentum is turning negative as the MACD (moving average convergence divergence) index is poised to generate a sell signal. The 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.

Refinery Inputs Increased leading To Declines in Stocks

The Department of Energy reported that U.S. crude oil refinery inputs averaged over 17.5 million barrels per day during the week ending May 26, 2017, 229,000 barrels per day more than the previous week’s average. Refineries operated at 95.0% of their operable capacity last week. Gasoline production increased last week, averaging over 10.4 million barrels per day. Distillate fuel production increased last week, averaging over 5.2 million barrels per day.

Imports Were Lower

U.S. crude oil imports averaged 8.0 million barrels per day last week, down by 309,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.1 million barrels per day, 6.6% above the same four-week period last year.

Inventories Declined

The EIA reported that U.S. commercial crude oil inventories decreased by 6.4 million barrels from the previous week. Gasoline inventories decreased by 2.9 million barrels last week while distillate fuel inventories increased by 0.4 million barrels last week and are near the upper limit of the average range for this time of year. Total commercial petroleum inventories decreased by 5.2 million barrels last week.

Demand is static.  The EIA reported that total products demand over the last four-week period averaged 20.4 million barrels per day, up by 0.1% from the same period last year. Over the last month, gasoline demand averaged 9.6 million barrels per day, down by 0.7% from the same period last year. Distillate fuel demand averaged 4.2 million barrels per day over the last four weeks, up by 3.0% from the same period last year.

Jobs are Strong Pushing the Dollar Higher

The 253k May ADP rise sharply exceeded consensus estimates of private payrolls of 180K The “as reported” ADP figures have nearly always overshot private payrolls since the October methodology change to leave an average overshoot of a whopping 49k, so today’s 63k overshoot of our private payroll estimate only modestly beats the average. We saw a 17k undershoot in April, but prior overshoots of 186k in March, 76k in February, 42k in January, 3k in December, 38k in November, and 15k in October. A 48k May goods employment rise that was roughly double our assumption thanks to gains of 37k for construction, 8k factories, and 3k for mining, alongside a 205k service job gain that also beat assumptions. The ADP as-reported average absolute error since the 2016 methodology change is 54k, versus a 32k average absolute error for the survey median.

U.S. Challenger reported announced layoffs climbed 15.1k in May to 51.7k after falling 6.7k to 36.6k. Compared to last April, announced job cuts are up 71.6% year over year versus April’s -42.9% year over year. The auto sector paced the layoffs, rising 16.8k. Announced layoffs in the retail sector fell 5.9k.

Jobless Claims Move Higher

The 13k initial claims bounce to 248k in the final week of May extended the prior 2k uptick to 233k which was 234k from a lean 233k BLS survey week reading. Claims remain tight despite the rise, though they lie above the 44-year low of 227k in the President’s Day week. Claims have undershot the 2016 average of 263k in every week of 2017. Claims are averaging just 238k in May, versus higher prior averages of 243k in April, 251k in March, 241k in February, 246k in January, and 253k in December. The 233k BLS survey week reading sits below recent survey-week readings of 243k in April, 261k in March, 247k in February and 241k in January.