Crude Oil Price Analysis for May 24, 2017

Crude oil prices closed on their higher, generating an outside day with lower low and a higher high and a higher close.  Volume was stronger than usually, which is generally a positive sign when prices close on their highs.  While the OPEC annual report showed that output exceeded demand in 2016, it appears that OPEC is willing to jawbone and potentially increase output cuts when they meet on Thursday.

Technicals

Crude oil prices closed on their highs recapturing the 51.45 level, and poised to test target resistance near the 50-day moving average at 51.98.  A break of this level would lead to a test of a downward sloping trend line that comes in near 52.90.  Support on crude oil prices is seen near the 10-day moving average at 49.45.  Prices are stilling in a topping patter, and then will need to break above 54.10, to eliminate the weight of a triple top that also generated a head and shoulder reversal pattern.  Traders away the OPEC meeting on Thursday but will need to get through the API inventory report on Tuesday evening and the EIA inventory report on Wednesday.

The weekly chart of crude oil remains in a relatively tight range capped by the highs near $55 per barrel and floored at $40.  Prices have been rangebound over the past 6-months, and OPEC will need to cut more than expected to balance inventories and push prices out into a new range.

The 15-minute chart of crude oil shows prices accelerated higher in PM trading on Tuesday, and took out resistance near the Monday highs at 51.43.  Short term support is seen near former resistance and the 10-unit moving average (15-minute) at 51.30.  Momentum on the intra-day chart is positive as the MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices for crude oil. 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 current reading on the RSI is 69, which is just below the overbought trigger level of 70, which could foreshadow a correction on an intra-day basis.

OPEC Report Showed Surplus of Oil

OPEC reports that world oil output exceeded demand by 800K barrels a day in 2016, the third consecutive global surplus, OPEC says in its annual report. Total OECD government and commercial inventories rose 14 million barrels to 4.61 billion barrels in 2016, the report says. The build came from a rise in government reserves, while commercial stocks were unchanged on the year at 3.01 billion barrels, 286 million barrels above the five-year average, the report says. OPEC is hoping its production cuts will bring the stocks back to the five-year average.  The U.S. was one of the catalysts for higher production.

Jawboning Ahead of the OPEC Meeting

While it is widely expected that OPEC will extend their current production cuts to March of 2018, OPEC says that it is committed to restore the balance of the oil market, and other items might be on the table.   The cartel is not ruling out any option for discussion at the upcoming meeting on Thursday, including considering deeper cuts, Kuwait’s Oil Minister Essam al-Marzouq said in an exclusive interview with Kuwait News Agency published on Tuesday. This help buoy oil prices into the close on Tuesday.  The extension is already priced into the market, but deeper cuts are not and could go a long way toward pushing prices through resistance levels.

Kuwait is Jawboning

The Kuwaiti minister said that any agreement should be satisfactory for all parties. And if “necessity arises, we could increase the output cut. But it is premature to talk about that now,”. Kuwait was one of the first OPEC producers to support the Saudi-Russian proposal to roll over the cuts for another nine months until March 2018.

The minister went on to say that Kuwait fully supports the extension of the deal for nine months, as well as all efforts aimed at rebalancing the global oil market. “All indications so far, show that most countries, if not all, back the extension of this agreement,” the minister told the Kuwaiti news agency (KUNA). Although signs and hints from OPEC producers point to support for a rollover of the cuts, not all members have voiced support for a nine-month extension.