Crude Oil Price Analysis for March 22, 2018

 

Crude oil prices surged higher on Wednesday, climbing 2.4% mid-day, following the Department of Energy’s report on U.S. inventories. Petroleum inventories saw declines across the spectrum, but the surprise draw in crude oil appeared to the be catalyst that gave prices a boost.  Refineries continued to come back on line, as inputs surged.  Imports continued to decline offsetting a continued rise in U.S. domestic production. The dollar also moved lower in the wake of the Fed’s decision to increase interest rates, as FOMC members failed to change their forecast for higher rates than anticipated in 2018.

Technicals

Crude oil prices moved higher on Wednesday and continue to break out above trend line resistance and poised to test target resistance near the January highs at 66.02. A break would lead to a test of target resistance near 70.  Support on crude oil prices is seen near the 10-day moving average at 61.95. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The fast stochastic moved higher, reflecting accelerating positive momentum, but the current reading of 96, is well above the overbought trigger level of 80 which could foreshadow a correction.

Refinery Inputs Increased as Imports Declined

Refinery inputs increased by 410K barrels reaching 16.8 million barrels per day during the week ending March 16, 2018. Refineries operated at 91.7% of their operable capacity last week. Refinery demand was exacerbated by declining imports which generated a draw in crude oil inventories.  The EIA reported that U.S. crude oil imports averaged about 7.1 million barrels per day last week, down by 508,000 barrels per day from the previous week.

The trend continued to persist as the monthly average of crude oil imports were 7.5 million barrels per day, 4.8% less than the same monthly period last year. Distillate fuel imports averaged 122,000 barrels per day last week.

Crude Oil Inventories Unexpectedly Declined

The EIA revealed that crude oil inventories unexpectedly dropped by 2.6 million barrels from the previous week. Expectations were for a 2.5-million-barrel draw, which helped energize prices. Currently, crude oil inventories, are in the lower half of the average range for this time of year. Gasoline inventories declined by 1.7 million barrels in line with expectations. Distillate fuel inventories decreased by 2.0 million barrels last week, which was also in line with expectations. Distillate fuel inventories are in the lower half of the average range for this time of year. Propane inventories decreased by 2.1 million barrels last week and total petroleum inventories decreased by 6.9 million barrels last week.

Petroleum Demand is Higher but Distillates Buck the Trend

Aggregate demand was higher, according to the EIA report, but product demand was mixed. Total products demand over the past month averaged 20.5 million barrels per day, up by 4.9% from the same period last year. Over the month, gasoline demand averaged about 9.3 million barrels per day, up by 1.9% from the same period last year. Distillate fuel demand surprised moving lower by 4.5%, averaging 3.9 million barrels per day over the month. Jet fuel demand was higher up 4.8% compared to the same period last year.

The Fed Appears to Be on Course for More Rate Hikes

The Federal Reserve increased the Fed Funds rate on Wednesday by 25-basis points to a range between 1.50% and 1.75%, as widely expected.  The fed increased its growth prospects for the U.S. economy, but railed to increase their forecast for rate hikes during 2018. Currently the average interest rate incorporate 2-more 25-basis point increased during the balance of 2018.  The Fed on average did increase its forecast for 2019 and 2020.  Inflation remains an issue, as the Fed is concerned that inflation remains subdued despite economic and jobs growth.  The market took the statement as slightly dovish which put pressure on the dollar and helped buoy crude oil prices.