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Crude Oil Price Analysis for March 23, 2018

By:
David Becker
Published: Mar 22, 2018, 18:15 UTC

Refinery demand is increasing just as crude imports into the U.S. are declining but that did not stop traders from taking profits after crude surged to a

Crude Oil

Refinery demand is increasing just as crude imports into the U.S. are declining but that did not stop traders from taking profits after crude surged to a 6-week high on Wednesday. The surprise draw in crude oil inventories was the catalyst for the rally, but as prices moved toward support, investors began to trade profits.

Technicals

Crude oil prices moved lower on Thursday reversing Wednesday’s gains. Prices made a higher high and a higher low and despite the lower close, is still in an uptrend. Support is seen near the 20-day moving average at 62.36. Resistance is the January highs at 66.66. Short-term momentum is negative as the fast stochastic generated a crossover sell signal in oversold territory which points to lower prices. The MACD (moving average convergence divergence) index is printing in the black while the MACD histogram has a positive trajectory which points to higher prices.

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.

U.S. refiners are receiving smaller shipments of oil

U.S. refiners are receiving smaller shipments of oil from members of the Organization of Petroleum Exporting Countries  due to the bloc’s production cut. Weekly crude imports from seven bloc nations dropped by 14% last week, the Energy Information Administration said. The fall brings import levels down to the lowest since 2010, when the agency first started collecting weekly data. Ecuador cut shipments to the United States by 86% and Kuwait cut exports by 58%, week-over-week.

Although oil prices have been improving through 2017 and into 2018, OPEC still has work to do to bring global oil inventories back to their five-year average—the metric that OPEC has vowed to achieve with the production cut deal, OPEC Secretary General Mohammad Barkindo said this week while on a visit to Azerbaijan.

Last month, the Energy Minister of OPEC’s leading producer Saudi Arabia, Khalid al-Falih, said that “If we have to err on over-balancing the market a little bit, so be it.” Saudi Arabia is very particular about stabilizing oil above $60 or $70 a barrel in order to ensure the impending initial public offering of Saudi Aramco raises a good chunk of change.

Jobless Claims Rose

U.S. initial jobless claims rose 3k to 229k in the week ended March 17 after sliding 4k to 226k in the March 10 week. Expectations were for a 1K decline. Claims are just off 48-year lows of 210k. The 4-week moving average rose to 223.75k versus the prior 221.5k. Continuing claims fell 57k to 1,28k in the March 10 week after rising 10k to 1,885k previously.

NAFTA Talks Continue

NAFTA’s three counties are “finally starting to converge” on the challenging rules around automotive content rules, said U.S. Trade Representative Lighthizer as reported by the Globe and Mail. He noted that Canada and the U.S. have the “similar objective” to repatriate additional auto manufacturing jobs following many years of seeing those jobs shift to Mexico. Lighthizer’s comments follow yesterday’s story that the U.S. had jettisoned a controversial auto content requirement. The changes in auto content rules along with Lighthizer’s comments are quite encouraging, greatly boosting the chances that a renewed NAFTA agreement is forthcoming after months of uncertainty over the fate of the trade pact.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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