Crude Oil Price Analysis for May 19, 2017

Crude oil prices initially tested lower levels but were able to hold on to support and moved higher into the close.  Prices made a higher high, and continue to move higher following the draws in crude oil inventories reported on Wednesday by the Department of Energy. In its short term energy outlook for May the Energy Information Administration forecast production April production to have climbed year over year.

Prices tested lower levels early in the trading session, but rebounded, after testing Wednesday’s lows at 48.05.  This level coincides with the neckline generated from the head and shoulder pattern, which created the flash crash in oil down to the 43.76 level.  Additional support on crude oil is seen near the 10-day moving average at 47.75.  Resistance is seen near 49.65, and then a downward sloping trend line that comes in near 52.50.

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 index moved from negative to positive territory confirming the buy signal. The MACD histogram is printing in the blacks with an upwards sloping trajectory which points to higher prices for crude oil.

The hourly chart of crude oil prices shows that crude remains rangebound.  Prices have recovered the 50% Fibonacci retracement level which was calculated from the move from 54.15 down to 43.76.  A new range appears to have been created that is capped near the 49.65 level.  The 38.2% retracement is the bottom end of the range seen near 47.73.  Hourly momentum is positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. The index is printing in the black with an upward sloping trajectory which points to higher prices for crude oil on an hourly basis. The hourly RSI (relative strength index) was unable to pierce through resistance which caps accelerating positive momentum.

The EIA Sees Larger U.S. Crude Production

The Energy Information Administration predicts that U.S. crude oil production averaged an estimated 8.9 million barrels per day in 2016. U.S crude oil production is forecast to average 9.3 million barrels per day in 2017 and almost 10.0 million barrels per day in 2018. EIA estimates that crude oil production for April 2017 averaged 9.1 million barrels per day, which is 0.2 million barrels per day above the April 2016 level and 0.6 million barrels per day above the recent monthly average low reached in September 2016.

For the 2017 summer driving season which is April through September, U.S. regular gasoline retail prices are forecast to average $2.39/gallon, compared with $2.23/gal last summer. The higher forecast gasoline price is primarily the result of higher forecast crude oil prices. The annual average price for regular gasoline in 2017 is forecast to be $2.34/gal, which, if realized, would result in the average U.S. household spending about $160 more on motor fuel in 2017 compared with 2016.

Jobs Data in the U.S. Remains Strong

U.S. initial jobless claims fell 4k to 232k in the week ended May 13 after slipping 2k to 236k previously. That dropped the 4-week moving average to 240.75k from 243.5k. Continuing claims declined another 22k to 1,898k in the May 6 week after diving 59k to 1,920k which was revised from 1,918k in the April 29 week. The labor market data remain very strong.

Manufacturing Rebounded in Philly

U.S. Philly Fed index rebounded 16.8 points to 38.8 in May, stronger than expected, after tumbling 10.8 points to 22.0 in April and 10.5 points to 32.8 in March. The surprisingly strong 19.7-point surge to 43.3 in February resulted in the highest reading since early 1984. But the employment component dipped to 17.3 from 19.9, while the workweek rose to 21.7 in May from 18.9 in April. New orders dipped to 25.4 from 27.4. Prices paid fell to 24.2 from 33.7, with prices received at 15.3 from 16.6. The 6-month general business index declined to 34.8 from 45.4, and is down from the 56.6 relative high from January, and the multi-year high of 61.2 in August 2014. The future employment index was 29.2 from 37.6, with new orders at 47.2 from 55.9 and prices paid at 42.7 from 34.7.