Crude Oil Price Analysis for September 20, 2017

Oil prices tested resistance but was unable to pierce through to higher levels and consequently declined and settled close to the 50 handle.  Hurricane Maria is likely to clobber the Carribean, but models say it will spare the U.S. and crude oil production areas which allowed prices to ease.  The IEA upgraded its demand growth number for 2017, which should continue to keep prices buoyed.

Technicals

Crude oil prices generated an inside day ahead of Wednesdays EIA inventory report.  Prices are holding near the most recent breakout level, but have been unable to push above resistance near last weeks highs at 50.88.  A break above this level would lead to a test of the May 52.50 highs. Support is seen near the 10-day moving average at 49.54. Momentum remains positive but is decelerating, as the MACD (moving average convergence divergence) histogram prints in the black with a declining trajectory which points to consolidation. The relative strength index (RSI) which is a momentum oscillator that measures accelerating and decelerating momentum, moved lower reflecting decelerating positive momentum. The current reading of 57, is in the middle of the neutral range and reflects consolidation.

International Energy Upgrades Demand

The international energy agency boosted its demand forecast for 2017, upgrading it to 1.6 million barrels per day.  The EIA believes that stable demand growth will eclipse supply and will eventually buoy prices even higher.

The EIA said  “There are still not enough signs of investment beginning to return, and that raises the risk of tightening of the market in the next five years and a risk to the stability of oil prices,”. The IEA said that there is little spare capacity and most if it is controlled by the Saudi’s who are in the process of reducing exports to the United States and the rest of the world. The EIA is bullish on demand growth and do not believe that OPEC will have the spare capacity to satiate demand. The IEA also believes that volatility will return to the market when the market begins to face a supply crunch.

Canadian Manufacturing Declined

Canada manufacturing shipment values fell 2.6% in July following a revised 1.9% decline in June which was -1.8%. The drop in shipments outpaced expectations. A 13.8% plunge in transportation equipment, which was the largest one-month drop since May of 2009, drove the pull-back in total shipments during July. The tumble in transportation industry shipment values was due to a 19.9% decline in motor vehicles and a 11.3% fall in motor vehicle parts. Statistics Canada attributes the vehicle/parts declines to longer and more concentrated seasonal plant closures than has been the case in recent years. Shipment values excluding motor vehicles and parts slipped only 0.2% in July. Total shipment volumes declined 1.4% in July, tracking our projection for a modest gain in July GDP at best.

U.S. Imports and Export Prices Rose in August

U.S. import and export prices rose 0.6% in August. The 0.1% import price gain in July was revised down to -0.1%, while the 0.4% rise in export prices was nudged up to 0.5%. On a year over year basis, import prices surged to a 2.1% year over year pace versus 1.2% year over year previously. The 12-month export price index climbed to a 2.3% year over year rate from 0.9% year over year which was revised from 0.8% year over year. In terms of month import prices, petroleum led the strength, jumping 4.8%, breaking a string of declines going back to early in the year. Excluding petroleum, import prices were 0.3% higher versus -0.1% previously which was revised from unchanged. Foods, beverage prices rose 0.3%. Import prices with China were flat from 0.1%. As for export prices, agricultural prices were up 0.1% after rebounding 1.9% in July which was revised from 2.1%. Excluding ag, export prices were up 0.7% versus 0.3% previously.

The U.S. Current Account Deficit Widened

U.S. Q2 current account deficit widened to -$123.1 billion from -$113.5 billion in Q1 which was revised from -$116.8 billion and Q4’s -$114.0 billion. The balance on goods and services narrowed to -$137.3 billion from Q1’s -$138.1 billion which was revised from -$139.0 billion. The primary income balance was $47.2 from $50.1 billion which was revised from $47.7 billion. The balance on secondary income was -$33.0 billion versus -$25.5 billion.