Crude Oil Price Analysis for September 15, 2017

The International Energy Agency released a bullish report on crude oil which buoyed prices and generated a break out above trend line resistance which saw prices touch $50 per barrel for the first time in a month.  Global supply fell in August, while demand for products such as gasoline and diesel soared.

Technicals

Crude oil prices broke out above trend line resistance, which is now seen as short term support which was generated from a downward sloping trend line that connects the highs in May to the highs in August that comes near $49.40.  Additional support is seen near the 10-day moving average at $47.82.  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.

Global Production Declined

The International Energy Agency said that global oil supply fell in August for the first time in four months, because OPEC’s oil production declined. World oil supply fell by 720,000 barrels per day in August compared to July, a significant decline that will aid in the market’s progress towards rebalancing.

Multiple outages contributed to the decline in global output. Hurricane Harvey resulted in U.S. oil production falling by 200,000 barrels a day in August, with outages occurring mostly in the Eagle Ford shale and offshore in the Gulf of Mexico. But OPEC also saw its collective output fall by 210,000 barrels a day in August, mainly from disruptions in Libya. The supply outages will go a long way toward adding some momentum to the rebalancing effort, even if some of them are only transitory.

Another notable issue, the IEA said, was that U.S. oil supply is quite a bit lower at this point than it expected, and not just because of Harvey. The agency singled out the fact that U.S. oil production actually declined in June from a month earlier, an unexpected development. That meant that the Harvey disruptions resulted in output declines from a lower-than-anticipated base.

Chinese Retail Sales Disappointed

China’s retail sales, industrial production and fixed investment was disappointing in August. Retail sales slowed to a 10.1% year over year pace in August from the 10.4% rate of expansion in July. But year to date retail sales growth was 10.4% in August, matching July. Industrial production growth was 6.0% year over year in August versus the 6.4% rate in July. But year to date production dipped to 6.7% from 6.8%. Fixed investment slowed to a 7.8% year over year growth pace in August from 8.3% in July. But foreign direct investment did improve to a 9.1% year over year pace in August from 2.3% in July, after contracting 3.7% in May and falling 4.3% in April.

Australian Employment Surged

Australia’s employment surged 54.2k in August following a revised 29.3k gain in July which was +27.9k. The increase was more than double expectations. The details were strong – full time jobs grew 40.1k after a revised 19.9k drop which was -20.3k while part time jobs improved 14.1k following a 49.1k rise which was +48.2k. The unemployment rate was 5.6% in August, matching the rate in July. The participation rate rose to 65.3% in August from 65.1%.

The BoE Left Rates Unchanged

The BoE left the repo rate at 0.25% and QE programs unchanged, as had been widely expected but gave its firmest guidance in a decade that a rate hike is in the pipeline. The repo vote was 7-2, with MPC members Saunders and McCafferty both repeating their votes for a 25 basis point hike in the repo rate to reverse the post-Brexit “emergency” cut and return the repo to 0.5%. The BoE’s statement highlighted that while there has been relatively limited news on activity points on the economy since the August meeting, the available signs point to a “slightly stronger picture than anticipated.”

Canadian New Housing Prices Increased

Canada’s new housing price index grew 0.4% month over month in July after the 0.2% gain in June. But the index slowed to a 3.8% year over year growth pace in July from the 3.9% pace of annual expansion in June. A 2.0% month over month gain in Vancouver’s new home prices drove the total index. Toronto revealed no change in July after an identical lack of change in June.

U.S. Jobless Claims Fell

U.S. initial jobless claims fell 14k to 284k in the week ended September 9 following the 62k surge to 298k in the September 2 week. Claims continue to be impacted by Harvey, said the BLS, with Texas and Louisiana estimating their figures. The 4-week moving average rose to 263.25k versus the prior 250.25k. Continuing claims slipped 7k to 1,944k in the September 2 week after rising 6k to 1,951k previously.