Crude Oil Price Analysis for September 14, 2017

Crude oil prices were higher Wednesday, following a larger than expected decline in products reported by the Energy Information Administration in their weekly estimate. Imports dropped significantly as barrels were unable to get into the Gulf of Mexico as Irma created a backlog.  Storage facilities in the Caribbean are also damaged and will not be back up and running for weeks.  Demand remains robust, with distillates continuing to experience strong year over year gains.

Technicals

Crude oil prices surged higher breaking out above trend line resistance formed from a downward sloping trend line that comes in near 49.25.  Target resistance is seen near the August highs at 50.43.  Support is seen near the 10-day moving average at 48.05.  Additional support is seen near an upward sloping trend line that comes in near 46.50. Momentum has turned 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 index moved from negative to positive territory confirming the buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices for crude oil.

Imports Tumbled in Latest Week

The Energy Information Administration reported that U.S. crude oil imports averaged 6.5 million barrels per day last week, down by 603,000 barrels per day from the previous week. Over the last month, crude oil imports averaged about 7.6 million barrels per day, 7.4% below the same month last year.

Product Inventories Dropped More than Expected

The EIA also revealed that U.S. commercial crude oil inventories increased by 5.9 million barrels from the previous week. This compared to expectations that inventories would rise by 3-million barrels. Gasoline inventories decreased 8.4 million barrels last week, which compared to expectations they would decline by 4-million barrels. Distillate fuel inventories decreased by 3.2 million barrels last week and have dropped to the middle of the average range for this time of year.

Demand Remains Solid

Demand continues to remain solid. Total products demand over the last month averaged over 20.4 million barrels per day, down by 0.8% from the same period last year. Over the last month, gasoline demand averaged about 9.6 million barrels per day, up by 0.2% from the same period last year. Distillate fuel demand averaged over 4.0 million barrels per day over the last month, up by 10.4% from the same period last year.

The API Reports a Larger than Expected Draw in Products

On Tuesday, the American Petroleum Institute issued a report which showed a larger than expected draw in gasoline inventories which came in conjunction with a smaller than expected build in crude oil inventories. Crude oil stocks increased by 6.181 million barrels, compared to analyst expectations that inventories would build by 10.1 million barrels for the week ending September 8 as many refineries in the Gulf Coast remain offline and demand in Florida wanes in the wake of the most recent hurricane. Gasoline inventories fell more than anticipated—by 7.896 million barrels for the week ending September 8, against an expected draw of 4.0 million barrels.

Crude oil prices was on the rise this week as OPEC reported lowered production in August, down to 32.755 million barrels daily per month in August, down from 32.834 million bpd in July, according to OPEC’s Monthly Oil Market Report published on Tuesday. The production decreases were more due to Libya’s unrest that saw a 112,300-barrel decline in August’s production, rather than a conscious effort to adhere to the cartel’s production cut deal.

PPI Came is Softer than Expected

U.S. PPI rose 0.2% in August with the core rate up 0.1%. Those are a tad below expectations. There were no revisions to July, where the headline and ex-food and energy rates declined 0.1%. On an annual basis, PPI accelerated to a 2.4% year over year versus 1.9% year over year previously. The core rate climbed to a 2.0% year over year pace from 1.8% year over year. Goods prices rebounded 0.5% versus the 0.1% dip in July, with energy up 3.3% from -0.1%, while food costs plunged 1.3% from unchanged previously. August services prices edged up 0.1% from -0.2%.