Crude Oil Price Analysis for June 26, 2017

Oil prices were nearly unchanged on Friday, but this past week was a difficult one for oil bulls as prices fell more than 4%.  Oil prices are now down more than 20% since hitting a high in January placing the market officially into bear market territory. Domestic demand for gasoline is faltering, while export production from the United States continues to grow.

Technicals

Crude oil prices bounced slightly on Friday, and is hovering near support which is a horizontal trend line that comes in near $42 per barrel. Resistance on crude oil is seen near former support near an upward sloping trend line that comes in near $44 per barrel. Prices appear to have climbed out of oversold territory. The relative strength index (RSI) moved from 29 to 30, which is the oversold trigger level, which could foreshadow a correction in crude oil prices.

Domestic Demand is Soft by Exports are Strong

Domestic demand for products such as gasoline appear to have slipped, but at the same time exports for products and crude are rising.  The EIA reports that demand outside the United States, continues to move higher, making domestic production advantageous. Restrictions on exporting domestically produced crude oil were lifted in December 2015. Between February of 2016 and February of 2017 exports of U.S. crude oil have doubled from 520,000 barrels per day to 1.1 million barrels per day.

While Canada remains the largest destination for U.S. crude oil exports, its share of total U.S. crude oil exports has declined. In 2016, the United States exported 1.2 million barrels a day of distillate, the country’s largest petroleum product export.

U.S. exports of gasoline have increased by more than 100% over the past 7-years. The growth in gasoline exports took place while domestic consumption, was also increasing. Mexico is the top destination for U.S. gasoline exports and the volume of gasoline trade is significant to U.S. refineries.

The largest product increase is propane. The most popular destination of propane exports are Japan and China. Propane has many non-transportation sector end-uses, including space heating, cooking, and as a petrochemical feedstock. So as domestic demand for products has moderated, exports have increased, which is not reflected in the price of products.

U.S. Producers appear to be ready to pump even more oil. According to oil service giant Baker Hughes, for the 23rd consecutive week the oil rig count rose by 11 to 758, while the natural gas rig count fell by three to 183. Offshore rigs remained level at 22 and are up one year over year. The U.S. rig count is up 520 rigs year over year when it stood at 421, with oil rigs up 428, gas rigs up 93 and miscellaneous rigs down one to zero.

While it also appears that OPEC is complying to their cuts, Libya continues to increase production. According to the monitoring committee set up by the cartel to track compliance, its rate reached 106 percent last month, which lacks any real significance in light of the fact that overall, OPEC production in that month increased for the first time this year on the back of ramp-ups in Libya and Nigeria. The May output was 336,000 barrels per day higher than the figure for April, with the total at 32.14 million barrels per day.

Canadian CPI Slowed in May

Canada CPI slowed to a 1.3% year over year pace in May from 1.6% in April, undershooting expectations of +1.4%. CPI grew just 0.1% month over month  in May compared to the median +0.2 after the 0.4% gain in April. The three core CPI measures remained tame: The CPI-trim grew 1.2% year over year in May after the 1.3% year over year pace in April, the CPI-common expanded at a 1.3% year over year rate versus 1.3% in April and the CPI-median slowed to a 1.5% year over year pace from 1.6%.

New Home Sales Increased More than Expected

The Commerce Department reported on Friday that new home sales increased 2.9% to a seasonally adjusted rate of 610,000 units last month. April’s sales pace was also revised sharply higher to 593,000 units from 569,000 units. Economists had forecast new home sales, which make up about 10% of all home sales, rising 5.4% to a pace of 597,000 units last month. Sales were up 8.9% on a year-on-year.