Crude Oil Price Analysis for May 31, 2017

Crude oil prices consolidated after making a higher high, following the drop and rebounded experienced on Thursday and Friday last week.  While OPEC will extend their output cut agreement for the next 9-months beginning in June, demand could continue to remain subdued. With China receiving a downgrade, it will be difficult for traders to see a demand led rebalancing of inventories.

Technicals

Crude oil prices are lower on the session dropping approximately 0.4%, after making a higher high. Resistance is seen near the 200-day moving average at 52.02. Support is seen near an upward sloping trend line that comes in near 49.25.  The price pattern is a topping pattern, and although the head and shoulder reversal pattern was rejected, prices have not been able to recapture levels significantly above the 50 level.

Momentum on crude oil prices is neutral as the MACD (moving average convergence divergence) index prints near the zero index level, while the MACD histogram has a flat trajectory which reflects future consolidation.

U.S. Personal Income and Spending Rose in April

U.S. personal income and spending rose 0.4% in April, as predicted. March’s 0.2% income gain was not revised, but February’s 0.3% gain was bumped up to 0.5%. The unchanged reading on spending in March was revised to 0.3%, with the flat February figure nudged to 0.1%. Wage and salary income surged 0.7% versus an unchanged previously which was revised from 0.1%. Disposable income was up 0.4% from the prior 0.2% gain. The savings rate was unchanged at 5.3%.

The PCE price deflator rebounded to a 0.2% rate versus -0.2%, and is up 0.2% on the core, versus -0.1%. However, on an annual basis, the headline index decelerated to 1.7% year over year compared to 1.8% year over year which was revised from 1.8% year over year. Similarly, the core rate is up 1.5% year over year from 1.6% year over year which was revised from 1.6% year over year. This means that inflation as gauged by the Fed is lower than the 2% target, which likely means that rates will not rise by more than is currently priced into the market.

The Fed’s Kaplan Sees Two or More Hikes

Dallas Fed’s Kaplan said he sees two more hikes this year and would like to announce balance sheet normalization details soon, and begin the process later this year, in a CNBC interview. Kaplan is a voting hawk, so these are not surprising comments, but they could spook the markets a bit. He is concerned a bit about some of the slowing seen in Q1 in both growth and inflation, but generally believes it’s transitory, as was outlined in the FOMC minutes to the May 2, 3 policy meeting. The tightening in the labor market should help boost price pressures. He’s not sure about fiscal policy, so things it’s best to hold to a base case scenario for now, without including forecasts on tax reform or government spending. He’s forecasting growth in the 2’s currently. A 3% pace of GDP growth would require an increase in productivity. Low interest rates are mostly a function of expectations of tepid growth, along with some flight to quality trades. His interview has ended.

Exxon Woods Want Trump to Say in Climate Pact

CEO Darren Woods joins the ranks of major US corporate leaders who have urged President Donald Trump to stay in the Paris climate pact. Woods wrote Trump in a May 9 letter that the US is “well positioned to compete within the framework of the Paris agreement,” due to its abundant supply of low cost natural gas and innovation in the industry. Woods also echoed the stated position of Secretary of State Rex Tillerson, his former boss at XOM, that remaining in the agreement will give the U.S. “a seat at the negotiating table,” in future climate discussions.

Canada’s Current Account Deficit Worsened

Canada’s current account deficit worsened to -$14.1 billion in Q1 from a revised -$11.8 billion shortfall in Q4 which was -C$10.7 billion. The deficit exceeded projections compared to a median C$12.0 billion. The expansion in the current account deficit was driven by an anticipated shift in the goods balance to a -$1.8. billion deficits from the $0.7 billion surplus in Q4.