Crude Oil Price Analysis for November 23, 2017

 

Crude oil prices moved higher as a fault in a major Canadian pipeline has curtailed supply to the U.S. TransCanada Corp who announced that there would be an 85% drop in crude it delivers to the U.S. on its Keystone pipeline. The reduction in volume will last through to the end of the month. Mid-day prices edged lower. While weekly API data also showed U.S. crude inventories falling by 6.4 million barrels in the week to November 17, the EIA numbers were less bullish. Trader’s will continue to focus on next weekends OPEC meeting where expectations are for an extension of the current output reduction agreement.

Technicals

Prices look strong into the close, and appear to be breaking out above former resistance near the November highs at 57.92.  In fact, prices hit 58.05, which was a 28-month highs, and a close near this level would then target resistance near the May 2015 highs at 62.58.  Support is seen near the 10-day moving average at 56.42.

Momentum is positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Refiners Are Revving Up

Refineries are revving up as demand remain robust.  The EIA reported that U.S. crude oil refinery inputs averaged over 16.8 million barrels per day during the week ending November 17, 2017, 199,000 barrels per day more than the previous week’s average. Refineries operated at 91.3% of their operable capacity last week, which is higher than utilization on a year over year basis. Gasoline production increased last week, averaging over 10.4 million barrels per day. Distillate fuel production increased last week, averaging over 5.3 million barrels per day.

Imports a Slowing but Domestic Production is Strong

Despite strong demand from refiners, U.S. crude oil imports averaged about 7.9 million barrels per day last week, down by 25,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, 5.3% less than the same four-week period last year. Some of the decline in production was offset by a rise in U.S. production which is at a multi-year high at 9.658 million barrels per day

Inventories Dropped

The EIA added that U.S. commercial crude oil inventories decreased by 1.9 million barrels from the previous week, which was in line with expectations. Gasoline inventories remained unchanged last week, but expectations were for a 1-million barrel build. Distillate fuel inventories increased by 0.3 million barrels last week but are in the lower half of the average range for this time of year. Total commercial petroleum inventories remained unchanged last week.

Demand is Solid

Total demand remains strong and over the last month averaged 20.0 million barrels per day, up by 0.1% from the same period last year. Over the last month, gasoline demand averaged over 9.4 million barrels per day, up by 2.6% from the same period last year. Distillate fuel demand averaged over 4.0 million barrels per day over the last month, up by 0.8% from the same period last year.

Durable Goods Orders Dropped

U.S. durable goods orders dropped 1.2% in October, weaker than forecast, after climbing 2.2% in September and 2.1% in August. Orders are up 2.5% year over year. Transportation orders dropped 4.3% following the 4.4% previous gain. Excluding transportation, orders increased 0.4% following September’s 1.1% increase. This component has not been negative since April. Nondefense capital goods orders excluding aircraft slid 0.5% versus a 2.1% gain previously. Shipments edged up 0.1% versus the prior 1.0% gain (revised from 0.9%). Nondefense capital goods shipments excluding aircraft were up 0.4% from 1.2%. Inventories rose 0.1% versus 0.6%. The inventory-shipment ratio was steady at 1.68 for a third straight month.