Crude Oil Price Analysis for November 15, 2017

Oil prices tumbled on Tuesday ahead of this evenings API report and following the IEA comments that global oil demand is actually much weaker than everyone thought. The International Energy Agency lowered its demand forecast by 50,000 barrels per day in 2017 and 190,000 barrels a day in 2018, raising concerns that the oil market is actually not as healthy as it seems. That puts demand growth at 1.5 million barrels per day this year, and only 1.3 barrels a day in 2018.

Technicals

Prices sliced through support which is now seen as resistance near the 10-day moving average at 56.22. Support is seen near the former breakout level at 54.92, and then again at an upward sloping trend line that comes in near 53.80. Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). The RSI tumbled from overbought territory which reflects accelerating negative momentum.

IEA Reduces Demand Forecast

The IEA says that the oil market might actually be oversupplied in the fourth quarter of 2017, which could deflate the recent price rally. Oil traders have gained confidence in the rebalancing effort lately, with impressive OPEC compliance and a high likelihood that the cartel extends its production cuts, perhaps through the end of next year.

OPEC added even more enthusiasm to the market on Monday, when it published a report that boasted of “high conformity levels” with the production cuts from its members, and noted that the group’s collective output fell by 151,000 barrels per day in October. OPEC’s Secretary-General Mohammad Barkindo said that there are “clear indications that the market is re-balancing at an accelerating pace and stability is steadily returning.” He went on to say that an extension of the cuts is the “only viable option” to restoring the cartel’s credibility.

But the IEA tempered this bullish sentiment on Tuesday, warning everyone that there isn’t a new, higher price floor at $60 per barrel. The bearish figures included a downward revision of 4Q2017 oil demand by 311,000 bpd. Part of the reason for weaker-than-expected demand is because oil prices are up about 20% since September.

U.S. shale, and other non-OPEC producers will add a whopping 1.4 million barrels a day of fresh supply in 2018, essentially offsetting nearly all of OPEC’s efforts. The IEA said that oil demand “will struggle to match this” huge increase in supply. The Paris-based energy agency also said that U.S. shale supply would grow strongly for the next decade, making the U.S. the “undisputed” leader among global oil producers “for decades to come.”

U.S. PPI Rose in October

U.S. PPI rose 0.4% in October for both the headline and core, identical to September’s gains. The data are hotter than expected, though in part still seeing some residual impact from the disasters. Goods prices were up 0.3% last month, with energy costs unchanged while food prices were up 0.5%. September posted a 0.7% increase in goods, which were boosted by a 3.4% surge in energy, while food was unchanged. October services costs increased 0.5% following a 0.4% September gain, with trade up 1.1% from the prior 0.8%, while transportation/warehousing costs increased 0.8% versus 1.0% previously. Compared to last year, headline PPI is at a 2.8% year over year pace, the fastest since February 2012, versus September’s 2.6% year over year, while the core rate is at 2.4% year over year from 2.2% year over year previously.

UK October Inflation Data was Weaker than Expected

UK October inflation data undershot expectations, with headline CPI remaining at 3.0%, a five-year high and unchanged from September. The median forecast had been for an uptick to 3.1% year over year. Core CPI also remained unaltered from the prior-month rate, holding at 2.7% year over year, contrary to the median forecast for a rise to 2.7%. The ONS stats office pointed out that price rises in food and recreational goods were offset by price declines in motor fuels and furniture prices.