Crude Oil Price Analysis for June 22, 2017

Crude oil prices came into the day on Wednesday somewhat higher as prices were buoyed following the API inventory report which showed a draw in crude oil stocks. The American Petroleum Institute reported Tuesday a decline of 2.7 million barrels in U.S. crude supplies for the week ended June 16. The API data, however, showed a climb of 346,000 barrels in gasoline supplies.  Traders awaited the EIA inventory data, which was bullish, but bears quickly grabbed the reigns putting downward pressure on prices.

Technicals

Crude oil prices tumbled, following a quick move higher to former support now resistance near the 44 handle.  Prices quickly made their way down to support near the 41.91 level and bounced into the close recapturing the $42.60 level.  Prices have formed a huge topping pattern, with target support seen near the January 2016 low at 36.76.

Momentum on crude oil prices 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 MACD index recently generated a crossover sell signal.

The relative strength index (RSI) which is a momentum oscillator that measures accelerating and decelerating momentum, moved lower with price action reflecting accelerating negative momentum. The only caveat is that the current reading of the RSI is 25, below the oversold trigger level of 30, which could foreshadow a correction in prices.

Imports Dropped

Imports were lower this past week averaging 7.9 million barrels per day last week, down by 149,000 barrels per day from the previous week, according to the Department of Energy. The 4-week moving average is still higher by 2% year over year, but imports should begin to decline at the beginning of July.

Despite a decline in gasoline demand, refineries are running at robust levels. U.S. crude oil refinery inputs averaged about 17.2 million barrels per day during the week ending June 16, 2017, 104,000 barrels per day less than the previous week’s average. Refineries operated at 94.0% of their operable capacity last week. Gasoline production increased last week, averaging about 10.2 million barrels per day. Distillate fuel production increased last week, averaging about 5.3 million barrels per day.

Inventories Declined in Latest Week

While crude oil inventories drew more than expected, the decline was moderate keeping prices stable. The EIA reported that U.S. commercial crude oil inventories declined by approximately 2.5 million barrels from the prior week, compared to expectations of a drop by 2.0 million barrels. The EIA revealed that U.S. crude oil inventories remain in the upper half of the average range for this time of year. Gasoline inventories decreased by 0.6 million barrels last week, compared to expectations of a rise of 0.5 million barrels. Distillate fuel inventories increased by 1.1 million barrels last week in line with expectations. Total petroleum inventories decreased by 1.9 million barrels last week.

Demand Remains Subdued

Demand for gasoline remains subdued. The EIA reports that total products demand over the past month averaged about 20.2 million barrels per day, down by 0.4% from the same period last year. Gasoline demand averaged approximately 9.6 million barrels per day, down by 1.6% from the same month last year. Distillate fuel demand is higher by 4%, averaging 3.9 million barrels per day over the same period last year.

OPEC Might Cut Deeper

Just a week has passed since an OPEC official last aired the possibility of deeper cuts, and comments on steeper reductions are resurfacing from the cartel. OPEC producers are holding discussions on potentially deepening the cuts, although some cartel members believe that the current deal needs more time to take effect on the oil market, Iran’s Oil Minister Bijan Zanganeh said Wednesday. “The US oil production increase was unpredictable and this increase is more than what OPEC members had foreseen,” according to the Iranian minister, who went on to add:

“We are in consultation with OPEC members to prepare ourselves for a new decision. But making a decision in this organization is very difficult because any decision will mean an output cut by the members.” The Iranian minister personally believes that OPEC needs to “wait a while and see how the market will form.”