Crude Oil Price Analysis for June 29, 2017

Crude oil prices continued to rebound on Wednesday despite an unexpected build in crude oil inventories compared to the draw that was expected.  It appears that managed money moved out of their long positions in futures and options over the past few weeks, allowing prices to rebound.  Demand continues to remain subdued, especially gasoline which is lower than it was one year ago.

Technicals

Crude oil prices moved higher on Wednesday, bouncing off support near the 10-day moving average at 43.82.  Prices increased more than 1%, but were unable to recapture resistance near an upward sloping trend line that was former support. The next level of target resistance on crude oil prices is seen near the mid-June highs at 47.

Momentum on crude oil prices has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses above the 9-day exponential moving average of the spread. The MACD index moved from negative to positive territory confirming the buy signal. The MACD histogram is now printing in the black with an upward sloping trajectory which points to higher prices.

The relative strength index (RSI), which is a momentum oscillator that measures accelerating and decelerating momentum, moved higher with price action reflecting accelerating positive momentum.  The RSI has come from oversold territory and is now printing a reading of 42, which is in the middle of the neutral range. The upward movement of the RSI from oversold territory reflects a buy signal.

Crude Inventories Unexpectedly Increased

The Department of Energy reported that U.S. commercial crude oil inventories increased by 0.1 million barrels from the previous week. This compares to expectations that stocks would decline by 2.5 million barrels. At 509.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Gasoline inventories decreased by 0.9 million barrels last week, which was slightly more than expected while distillate fuel inventories decreased by 0.2 million barrels last week. Total commercial petroleum inventories increased by 0.8 million barrels last week.

Demand Remains Subdued

Demand remains subdued.  The EIA reported that total products demand during the past month averaged 19.9 million barrels per day, down by 2.7% from the same period last year. Over the last month gasoline demand averaged 9.5 million barrels per day, down by 2.4% from the same period last year. The one bright spot was distillate demand which includes heating. Demand averaged over 3.9 million barrels per day over the last month, up by 2.9% from the same period last year.

Imports Keep Coming to the U.S.

Imports continued to climb despite a reduction in Saudi imports which will likely continue to decline in July. The Energy Information Administration reported that U.S. crude oil imports averaged over 8.0 million barrels per day last week, up by 140,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.1 million barrels per day, 3.0% above the same four-week period last year. Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 571,000 barrels per day. Distillate fuel imports averaged 139,000 barrels per day last week.

The lack of gasoline demand has reduced refinery runs ahead of the 4^th of July which is the period where the U.S. generally experienced the most active driving during the year. The EIA reported that U.S. crude oil refinery inputs averaged 16.9 million barrels per day during the week ending June 23, 2017, 262,000 barrels per day less than the previous week’s average. Refineries operated at 92.5% of their operable capacity last week. Gasoline production increased last week, averaging over 10.3 million barrels per day. Distillate fuel production decreased last week, averaging over 5.2 million barrels per day.

The American Petroleum Institute reported Tuesday a rise of 851,000 barrels in U.S. crude supplies for the week ended June 23. Expectations were for a small decline as Tropical Storm Cindy disrupted production in the Gulf of Mexico last week. The API data also showed a rise of 1.4 million barrels in gasoline supplies, while inventories of distillates were up 678,000 barrels.