Crude Oil Price Analysis for November 17, 2017

 

Crude oil prices remained steady on Thursday consolidating in a tight range following Wednesday’s route.  The IEA negative demand report trumped the mixed inventory report, and higher production is now weighing on prices.  U.S. producers continued to raise the stakes increasing production above 9.62 million barrels per day, just as the IEA says demand will decline.

Technicals

Crude oil prices are hovering above former resistance now support at the February 2017 highs at 54.92.  Resistance is seen near the November highs at 57.92. 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 exponential moving average minus the 26-day exponential moving average) crosses below the MACD signal line (the 9-day exponential moving average of the MACD line).

Demand is Dwindling

On Wednesday the Department of Energy released its inventory report but this was overshadowed by news that the International Energy Agency downgraded its demand forecast for both this year and next. The agency lowered its 2017 forecast by 50,000 barrels a day, which may not seem like much, but is the result of a more recent slowdown.  The IEA says that demand in the Q4 will likely end up being 311,000 barrels lower than it previously thought. There are a variety of reasons for this, including fewer heating degree day numbers for the winter, lower demand in the Middle East, and some “modest changes elsewhere.” Overall, the IEA revised down its 2018 oil demand forecast by 190,000 barrels a day.

The drop in demand will leave the market with a surplus in the Q4, and that slowdown will continue into 2018. Global supply will exceed demand in the first quarter of next year, and the surplus will linger in the second quarter.

The sudden pessimistic outlook for the oil market is a symptom of explosive growth from U.S. shale, which, combined with other non-OPEC producers, will result in an additional supply in 2018. That is a staggering number, and so large that “next year’s demand growth will struggle to match this,” the IEA said. The agency warned that “absent any geopolitical premium, we may not have seen a ‘new normal’ for oil prices.”

Canada Manufacturing Shipments Grew

Canada manufacturing shipments grew 0.5% in September following a revised 1.4% gain in August. The rise in September shipments was contrary to expectations for a modest pull-back. A 10.3% surge in the value of petroleum and coal product shipments dove the increase in total shipment values during September, which higher petro and coal prices supporting. But petro and coal shipments excluding the impact of prices grew a solid 6.7%. Meanwhile, total shipment volumes were up 0.7% month over month in September, supportive of expectations for a resumption in GDP growth during September following the 0.1% month over month drop in August GDP.

Canada saw a C$16.8 billion investment inflow from abroad in September following the C$9.8 billion inflow which was C$9.9 billion in August. The bond market was the source of much of the purchases, accounting for C$18.7 billion in September. A total of 9.5 billion in Federal government bonds was acquired

U.S. Jobs Data Remains Strong

The 10k initial claims rise to 249k in the second week of November, which included Veteran’s Day, extended the prior 10k bounce to 239k, as claims rise further above the 44-year low of 223k in October’s BLS survey week. Claims have given back some of the surprising post-hurricane tightness in October, though we still expect tight claims levels through early 2018 with rebuilding activity and an improved economic backdrop. Claims are averaging 245k in November, which is above the super-lean 233k October average but below the hurricane-boosted 269k average in September, versus similar prior averages of 246k in August, and 242k in July.