Crude Oil Price Analysis for June 21, 2017

WTI crude prices tumbled approximately 2% falling to a 7-month low, breaking through support levels. The market has been in a distinct bear trend since late May, losing nearly 16% over this period. The global oversupply theme has been driving the market lower, despite the OPEC-led pledge to maintain its initial six-month agreement to curb supply by 1.8 million barrels per day by a further nine months. Rising supply in the U.S., Nigeria and Libya, alongside signs of a demand ebb in Asia, which is the biggest oil-consuming region in the world, have been weighing on crude prices.

Technicals

Crude oil prices broke down through trend line support which was generated from an upward sloping trend line that comes in near $44.  The July contract which expires, settled off its lows of the session, with target support now seen near the November 2016 lows at 42.20.  Resistance is former support and the 10-day moving average at 45.12. Prices continue to form a topping pattern that resembles a head and shoulder reversal pattern that would target the August 2016 levels near 39.50.

Momentum is negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices for crude oil.  The RSI (relative strength index) which is a momentum oscillator that measures accelerating and decelerating momentum, is printing a reading of 29, which is below the oversold trigger level of 30 and could foreshadow a correction in crude oil prices.

Libyan Production is Rising

There are reports that Libya has raised production by 50k barrels per day, and Nigeria by 62k barrels, which have sparked selling, fanning the global supply glut narrative. Crude prices are now down by over 16.0% from the highs seen in late May.

Crude oil started the week with a loss, which may be extended today as U.S. shale drillers continue to add rigs, and Libya and Nigeria ramp up production, undermining their fellow OPEC members’ efforts to reduce output and support prices. Oil prices are now at a 7-month low.

Oil prices were pressured when last Friday, Baker Hughes reported the 22nd week in a row that US drillers have added rigs which is a record-long streak despite OPEC and Russia announcing the extension of their oil output cut deal.

Oil bulls also needed to absorb  Libya’s announcement that its crude oil production has hit 885,000 barrels per day after the National Oil Corporation struck an interim agreement with German Wintershall, which led to the unblocking of some 160,000 barrels per day in daily production, shuttered during a dispute between the two. Indifferent to OPEC’s efforts to curb the glut to push up prices, Libya is eager to raise its production as quickly as possible, eyeing 1 million barrels per day by the end of July.

The political standoff in the Middle East between Qatar and other powers in the Middle East enters its third week, and the conflict shows no signs of abating. On June 5, Saudi Arabia, Egypt, the UAE and Bahrain cut diplomatic ties with Qatar and also tried to close off entry to Qatar by land, sea and air. They argued that Qatar is a major funder of terrorism.

U.S. President Donald Trump backed the move. “The nation of Qatar, unfortunately, has historically been a funder of terrorism at a very high level, and in the wake of that conference, nations came together and spoke to me about confronting Qatar over its behavior,” Trump said on June 9. “I decided, along with Secretary of State Rex Tillerson, our great generals and military people, the time had come to call on Qatar to end its funding — they have to end that funding and its extremist ideology in terms of funding.”

Canadian Wholesale Shipments Improved in April

Canada wholesale shipment values improved 1.0% in April after the revised 1.2% gain in March (was 0.9%). Increases were marked in three of the seven subsectors: machinery, equipment and supplies surged 7.3%, food, beverage and tobacco grew 1.5%. Farm products were up 5.2%. Total wholesale shipment volumes grew 0.7% m/m in April, which is supportive of our 0.2% projection for April GDP.