Crude Oil Price Analysis for September 12, 2017

WTI crude prices are up 1.45% slightly off from the intraday highs. The gain is a rebound following the sharp 3%-plus dive of Friday, which was driven by concerns that Hurricane Irma would dent U.S. demand. Saudi Arabian oil minister met his Venezuelan and Kazak counterparts to discuss extending the March deadline of the supply curtailment accord. Gasoline demand surged as residence scrambled to leave the stay, especially those on the west coast of the state which were not expecting the storm track to head their way.  Demand for power will be lower given the power outages which should eat into natural gas demand. Gasoline demand will remain high, but Hurricane Harvey has help reduce supply which should continue to buoy prices.

Technicals

Crude oil prices rebounded on Monday, recapturing short term support near the 10-day moving average at 47.60.  Additional support is seen near an upward sloping trend line that comes in near 46.20.  Resistance on crude oil prices is seen near a downward sloping trend line that comes in near 49.40. Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flat trajectory which reflects consolidation.  The relative strength index (RSI) which is a momentum oscillator that measures accelerating and decelerating momentum, is printing a reading of 52, which is in the middle of the neutral range and reflects consolidation.

In the wake of the hurricanes Harvey and Irma, oil demand is expected to drop by some 900,000 barrels a day this month.  Investment bank Goldman Sachs says that  “Irma will have a negative impact on oil demand but not on oil production or processing,”. “Harvey’s negative impact on demand will remain larger, however, given the large concentration of energy-intensive petrochemical activity in its path,” the bank said. According to Goldman’s estimates, the combined effects of production disruption and demand drop from hurricanes Harvey and Irma alone will lift global oil inventories by 600,000 barrels a day in September. For next month, estimates are that the hurricanes will lower oil demand by some 300,000 barrels per day, according to Goldman Sachs.

Demand Remains Strong

Demand remained solid. Total products demand over the last month averaged about 20.8 million barrels per day, up by 0.2% from the same period last year. Over the last month gasoline demand averaged over 9.5 million barrels per day, down by 1.0% from the same period last year. Distillate fuel demand averaged about 4.1 million barrels per day over the last month, up by 9.9% from the same period last year.

Inventories were mixed as expected.  The EIA revealed that U.S. commercial crude oil inventories increased by 4.6 million barrels from the previous week. This compares to expectations of a 3-million-barrel increase. Gasoline inventories decreased 3.2 million barrels last week, while distillate fuel inventories decreased by 1.4 million barrels last week. Total commercial petroleum inventories increased by 7.0 million barrels last week.

Canadian Housing Started Move Higher

Canada housing starts edged higher to 223.2k in August from the revised 222.0k unit growth pace in July which was 222.3k. The improvement mildly outpaced expectations. Multiple urban starts improved 2.7% to 145.6k in August while single detached starts fell 3.2k to 61.9k. By region, Toronto housing starts trended higher by 8% in August, driven by apartment starts. Vancouver saw a steady trend measure in August, with the pace of new home construction well above its historical average, says CMHC. The six month average of total housing starts was 219.4k in August from 217.3k in July. It was the eighth consecutive month the “trend” measures have been above 200.0k. The 50 basis points in BoC rate hikes since July are a headwind to Canada’s housing market, but a robust economy and employment growth suggest momentum will remain largely intact for sales and construction, although regional disparities will remain.

Japan’s Core Machinery Orders Rose

Japan’s core machinery orders rose 8.0% in July from the previous month, up for the first time in four months, government data showed on Monday, in a tentative sign of recovery in capital expenditure.     The rise in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, compared with a 4.4 percent increase expected by economists in a Reuters poll. It followed a 1.9 percent decline in June, the Cabinet Office data showed.      Compared with a year earlier, core orders, which exclude ships and orders from electric power utilities, declined 7.5%, versus a 7.3% decrease expected by economists.