Crude Oil Price Analysis for March 26, 2018

Crude oil prices moved higher on Friday, as strong export demand continues to drive demand for crude oil. The increase comes despite a report from oil service giant Baker Hughes that active rig counts increased in the latest week. Production in the United States continues to rise, but the increase is easily offset by the decline in imports.

Technicals

Crude oil prices rose up to resistance level near the March highs at 65.64. A break of this level would lead to a test of the January highs at 66.66. Support is seen near the 10-day moving average at 62.70. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (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 generated a crossover buy signal, but the oscillator is in overbought territory which could foreshadow a correction.

Active Rigs Increased this Week

According to Oil Service giant Baker Hughes, the number of active U.S. rigs drilling for oil rose by four to 804 this week. The oil-rig count had also climbed by four last week. The total active U.S. rig count, which includes oil and natural-gas rigs, also climbed by five to 995, according to Baker Hughes

Strong Distillate Demand Will Keep Crude Oil Prices Buoyed

Distillate prices have remained buoyed, as demand will likely continue to remain strong, given very strong exports.  As refiners move into the gasoline season, exports will begin to increase even more as domestic demand begins to subside.  U.S. exports of petroleum products continued to grow in 2017, increasing 555,000 barrels per day per day according to the EIA. Rising U.S. exports of distillate, and gasoline are largely the result of increased U.S. refinery runs, which continued to set record highs in 2017, and are rising in 2018. With production increasing and imports declining, there will be further incentive for more U.S. domestic production and higher runs for refiners.

The EIA reported that refinery inputs averaged 16.9 million barrels per day in 2017, but as capacity increased utilization decline.  With more refiners taking advantage of export demand utilization in the U.S. did not hit a record in 2017 hitting 91% of total capacity. Strong global economic growth spurring overall demand, combined with market factors unique to each product, supported U.S. petroleum product exports.

U.S. crude oil exports grew

U.S. crude oil exports grew 527,000 barrels per day from the 2016 level, while distillate grew by 198,000 barrels per day, the largest year-on-year growth in exports for a single petroleum product. Distillates are used for diesel as well as heating oil. The increase in U.S. crude oil exports was only slightly less than the increase in total petroleum products. Distillate continued to be the most exported U.S. petroleum product at 1.4 million barrels a day in 2017.

Mexico was the largest single destination at nearly 20%, but this could become an issue if NAFTA is disrupted. In 2017, the United States exported approximately 27% of total domestic distillate production. Distillate demand should continue to remain stable in 2018, especially of globally growth continue to expand.  With demand continuing to climb and imports to the U.S. declining, crude oil prices should remain buoyed as long as OPEC keeps production contained.

Canada’s CPI grew

Canada’s CPI grew 0.6% in February month over month after the 0.7% gain in January. The CPI jumped to a 2.1% year over year growth rate after the 1.7% year over year clip in January. The month comparable gain and the annual growth rate came in above expectations, but the risks for this report were to the upside. The core measures were also firmer: the CPI-trim grew 2.1% year over year in February after the 1.8% growth pace in January. The CPI-median expanded at a 2.1% pace after a 1.9% rate. The CPI-common rose 1.9% on the heels of a 1.8% increase.