Crude Oil Price Analysis for June 23, 2017

Oil prices are up from lows, but remains below USD 43 per barrel as oil analysts turn increasingly gloomy on the supply outlook. There are reports of talks in Vienna this week between OPEC and non-OPEC producers focused more on how to deal with rising output in Libya and Nigeria, rather than deepening output cuts.

Technicals

Oil prices bounced at support near a horizontal trend line that reflects the lows seen in November of 2016 near 42.13.  Short term resistance is seen near former support which is now resistance which was an upward sloping trend line that connected the lows in November 2016 to the lows in May and comes in near $44 per barrel. Prices remain oversold. 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 prices. 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.

Libya’s Production is Rising

Libya’s production just topped 900,000 barrels a day which is a new multi-year high that is up sharply even from just a few weeks ago. Libyan officials are hoping that they will hit many more milestones in the coming months. Next stop is 1 million barrels per day, which Libya hopes to breach by the end of July. Rising Libyan crude oil is offsetting the production cuts by the member of OPEC that are reducing production.

Shale Production is Rising

U.S. shale is arguably the biggest reason why prices are floundering again. The rig count has increased for 22 consecutive weeks, rising to 747 as of mid-June, up more than 100 percent from a year ago. Production continues to rise, with output expected to jump by 780,000 barrels per day this year, according to the IEA. Ultimately, the shale rebound appears to have killed off yet another oil price rally, the latest in a series of still-born price rebounds since the initial meltdown in 2014.

Managed Money Cut Bullish Bets

Hedge funds and other money managers slashed their bullish bets on crude oil futures in the latest data release. Sentiment is profoundly pessimistic at this point, and because the IEA, OPEC and EIA recently published very downbeat assessments about the pace of rebalancing, a grim mood will be sticking around for a little while. The next reports from those energy watchers won’t come out for almost another month.

As OPEC’s most significant member and one of the largest crude oil producers in the world, Saudi Arabia typically exerts considerable power over global energy market trends. Yet for the last year, the oil giant has been largely reacting to events outside of its control: surging U.S. shale production, OPEC-member cheating and non-compliance, uncertain demand and a persistent supply glut that has kept prices at or below $50 a barrel.

RBZ Held Policy Unchanged

The Reserve Bank of New Zealand held the policy rate at 1.75%, as expected. Low for long remains in place, with Wheeler again saying, “Monetary Policy will remain accommodative for a considerable period.” And a dovish bias was retained, as the Governor concluded that “Numerous uncertainties remain, and policy may need to adjust accordingly.” This was the same as in May. In March, he said “Numerous uncertainties remain, particularly in respect to the international outlook, and policy will need to adjust accordingly.” In other words, it looks like they won’t hesitate to add accommodation if downside risks to the economy manifest. The onus remains on the inflation and growth data, with additional undershoots setting the stage for further easing.

UK CBI Beat Expectations

U.K. CBI survey more upbeat than anticipated, with the total orders reading jumping to a 30-year high of 16 compared to expectations of 7 from 9 in the previous month. The export gauge rose to 16 in June, which was a 22 year high. The good orders number offer a positive outlook as a measure of output growth declined, but while the weak Pound is underpinning export and overall orders, the CBI report also showed continued pressure on prices from a weaker currency, with expectations for output prices elevated this month, even if they remain below the peak seen back in February.