Crude Oil Price Analysis for October 19, 2017

 

Crude oil prices were slightly higher on Wednesday, following a larger than expected draw in total petroleum inventories which was driven by an unexpectedly large draw in crude oil. Crude oil import continued to decline week over week as well as month over month as the decline in Saudi exports are taking their toll. Refiners are still not back to pre-hurricane levels, but are operating close to their average operations based on the current time of year.

Technicals

Crude oil prices were nearly unchanged on Wednesday despite a larger than expected draw reported by both the EIA and API on Wednesday and Tuesday evening respectively. Prices are holding steady near the 52, handle, and have not been able to breach resistance near a downward sloping trend line that comes in near 53.10. Support is seen near the 10-day moving average at 50.97. Momentum has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

Imports Decline Runs Remain Stable

The Energy Information Administration reported that U.S. crude oil refinery inputs averaged over 15.4 million barrels per day during the week ending October 13, 2017, 819,000 barrels per day less than the previous week’s average. Refineries operated at 84.5% of their operable capacity last week.

Imports remain under pressure which is likely why inventories dropped in the latest weeks. The EIA reported that U.S. crude oil imports averaged 7.5 million barrels per day last week, down by 134,000 barrels per day from the previous week. Over the last month, crude oil imports averaged over 7.4 million barrels per day, 1.9% below the same month last year.

Inventories Drop

The Department of Energy also revealed that U.S. commercial crude oil inventories decreased by 5.7 million barrels from the previous week. Gasoline inventories increased 0.9 million barrels last week, while distillate fuel inventories increased by 0.5 million barrels last week and are in the lower half of the average range for this time of year.

Demand for distillates has finally dipped due to the warmer than normal weather. The DOE stated that total products demand over the last month averaged over 19.9 million barrels per day, down by 0.7% from the same period last year. Over the last month, gasoline demand averaged over 9.3 million barrels per day, up by 2.9% from the same period last year. Distillate fuel demand averaged over 3.7 million barrels per day over the last month, down by 6.4% from the same period last year.

On Tuesday the markets absorbed the API number which showed that crude oil inventories are still coming down. The American Petroleum Institute (API) reported a huge draw of 7.130 million barrels in United States crude oil inventories, compared to a survey of analysts that expected inventories would draw down by 3.9 million barrels for the week ending October 13. Gasoline inventories, according to the API, saw a surprise build of 1.941 million barrels for the week ending October 13, against an expected draw of 340,000 barrels.

Labor Markets Remain Tight

Philly Fed hawk Harker sees very little labor market slack nationally, though there are regional disparities, he said. He expects the labor force participation rate to drop “a couple tenths” over the next few years. He also argued that the U.S. needs to get every last person into jobs as it possibly can, since growth is “fundamentally growth in productivity plus growth in the labor force.” Though he didn’t directly address monetary policy, the focus on boosting labor seems a bit more dovish than expected, as it implies he would be more tolerant of lower joblessness to get there.

Fedspeak from Dudley and Kaplan, with Kaplan saying the main headwind for the U.S. economy is an aging workforce and low productivity, while Dudley chimed in that income mobility has been quite poor. Kaplan concurred that worker mobility is near a historic low, while worker development was also lagging. They are taking part in a moderated panel on regional trends in NY and Texas, but seem to be starting out on the big picture.