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WTI Crude Oil

Crude oil prices rebounded on Thursday following Wednesday inventory report from the Department of Energy that showed a larger than expected draw in stockpiles. Crude oil exports out of the United States hit another record high, as production reached all-time highs.  Solid productivity growth will add to GDP which should help buoy oil prices.’

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Technicals

Crude oil prices continue to form a bull flag pattern which is a pause that refreshes higher.  Prices surged up to 55.22, but were unable to hold on to gains on Wednesday. The consolidation is a pause and resistance at 54.94 and 55.22 will likely be tested. Support is seen near the 10-day moving average at 53.18. Momentum on crude oil prices is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

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U.S. Export Surge

Crude oil exports hit another record last week, at 2.133 million barrels per day, according to the EIA, as production also continued growing. This is the first time U.S. oil exports have breached the 2-million-barrels a day level. The Department of Energy reported that average daily production stood at 9.55 million barrels, up by 46,000 barrels a day from a week earlier and from 8.52 million barrels day  a year earlier.

The EIA data is largely in line with U.S. export data calculated by French energy data provider Kpler. Kpler, which tracks crude oil cargoes globally, noted that the biggest portion of these higher exports went to Europe, which is a bit surprising given that Asia has been hailed as the main destination for U.S. crude.

At 914,000 barrels a day, U.S. oil shipments to Europe in the week to October 27 rose by 572,000 barrels a day from the prior week, signaling growing demand for U.S. crude on the continents. At the same time, shipments to Asia have been on the decline. Over the six weeks between September 22 and October 27, shipments to Asia declined by 357,000 barrels a day or 54%.

U.S. exports are seen to continue growing at a healthy rate, displacing OPEC from its key market in Asia. The cartel’s hands are bound by the production cut agreement sealed late last year, and U.S. producers are now taking advantage of the larger spread between Brent and West Texas Intermediate to market their light crude, so similar to Middle Eastern grade, to Asian refiners.

Last year, the top 10 destinations for U.S. crude were led by Canada, with the Netherlands a distant second, and Curacao at number three. In the first seven months of this year, Canada’s share of U.S. exports fell from 60.7 percent to 34 percent, while China’s share rose from 3.7% to 20% as of July 2017.

Claims Dropped

The 5k U.S. initial claims drop to a lean 229k in the final week of October trimmed the 11k rise to 234k from a 44-year low of 223k in the BLS survey week. Claims have more than unwound the September hurricane boost to leave remarkably tight levels, which will probably extend into year-end thanks to rebuilding activity and an improved economic backdrop. Claims are averaging just 233k in October, which is below the 269k hurricane-boosted September average, but also well below prior averages of 246k in August and 242k in July. The 223k BLS survey week reading followed a hurricane-lifted 260k BLS survey week reading in September, and prior readings of 232k in August and 234k in July. Payrolls face upside risk on Friday. Vehicle sales sustained a robust 18.0 million clip in October after the September spike to an 18.5 million cycle high, and the vehicle assembly rate is likely climbing.

U.S. Productivity Surged

U.S. productivity growth climbed 3.0% in Q3, with unit labor costs up 0.5%. Productivity doubled the Q2 rate of 1.5%, and is well above the 0.1% clip from Q1. It’s the fastest rate since Q3 2014. Output slowed slightly to a 3.8% from 3.9% previously which was revised from 4.0%. Employee hours slid to 0.8% from 2.4% which was revised from 2.5%. Compensation per hour rose to a 3.5% rate from 1.8%. The price deflator was 2.1% versus 0.6%. Real compensation was weakened to 1.5% from 2.1%. Compared to Q3 last year, productivity is at a 1.5% year over year pace versus the 1.3% year over year clip from Q2.

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