Crude Oil Price Analysis for November 9, 2017

Crude oil prices moved lower whipsawing following a mixed inventory report from the Department of Energy.  Prices have been buoyed by purchasing pressure in the wake of a crackdown of corruption in Saudi Arabia. With distillate stocks as the lower end of the average range for this time of year, any significant cold spells will deplete already low inventories. Inventories were mixed, as a build in crude oil inventories was offset by a robust draw in products which include gasoline, distillate and propane.

Technicals

Crude oil prices surged higher initially and then generated an outside day which is generally considered a reversal pattern. Prices hit a higher high and a lower low with a lower close. Prices might still be forming a bull flag pattern that is a pause that refreshes higher and consolidate the early weeks gains. Momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory. Prices are overbought as the RSI (relative strength index) prints as 74, which is above the overbought trigger level of 70 and could foreshadow a correction.

Refiners are Running More Crude

Refiners are continuing to take advantage of robust distillate cracks, running operations at elevated levels for this time of year. The EIA reported that U.S. crude oil refinery inputs averaged 16.3 million barrels per day during the week ending November 3, 2017, 290,000 barrels per day more than the previous week’s average. Refineries operated at 89.6% of their operable capacity last week. Distillate fuel production increased last week, averaging 5.2 million barrels per day.

Imports Have Declined

At the same time, imports continue to remain low, which is the strategy that the Saudi’s are undertaking to attempt to rebalance the U.S. crude market. U.S. crude oil imports averaged about 7.4 million barrels per day last week, down by 194,000 barrels per day from the previous week. Over the last month, crude oil imports averaged over 7.6 million barrels per day, unchanged from the same month last year.

Inventories were Mixed

Inventories were mixed, as crude oil actually climbed while products contracted. The EIA reported that U.S. commercial crude oil inventories increased by 2.2 million barrels from the previous week. Gasoline inventories decreased 3.3 million barrels last week, and are in the lower half of the average range. Distillate fuel inventories decreased by 3.4 million barrels last week and are in the lower half of the average range for this time of year. Total commercial petroleum inventories decreased by 9.1 million barrels last week. Hurricane Harvey played a significant role in the reduction of gasoline and distillate inventories which continue to remain depressed.

Demand is Flat

Demand in aggregate is flat. Total products demand over the last month averaged over 19.9 million barrels per day, down by 0.8% from the same period last year. Over the last month, gasoline demand averaged over 9.3 million barrels per day, up by 3.0% from the same period last year. Distillate fuel demand averaged 3.9 million barrels per day over the last four weeks, down by 2.9% from the same period last year.

Chinese Imports Surged

Chinese October trade data showed that the country’s imports of crude had slowed, which helped catalyze some profit taking among near-term tactical market participants, although anti-corruption purge in Saudi Arabia, which has played on broader Mideast tensions, continues to demand an oil price premium. China’s oil imports fell to a rate of 7.3 million barrels per day in October, down from about 9 million barrels per day in September.

The API Showed a Solid Draw

The American Petroleum Institute reported a draw of 1.562 million barrels in United States crude oil inventories, against expected inventories would draw down by 2.7 million barrels for the week ending November 3, continuing the drawdown that the market has seen in recent weeks. Gasoline inventories, according to the API, saw a small build of 520,000 barrels for the week ending November 3, against an expectation of a draw of 2.25 million barrels.