Crude Oil Price Analysis for September 22, 2017

Crude oil prices continued to climb on Thursday buoyed by Wednesday larger than expected draw in petroleum inventories reported by the Department of Energy.  Inventories of distillates, which include heating oil and diesel fuel, have dropped to the lower end of the 5-year range, ahead of fall in the U.S. and Europe.  Traders will need to keep an eye on these inventories, as it will likely be the drive over the next few months.

Technicals

Crude oil prices continue to climb, notching up a 0.4% gain on Thursday, hitting a higher high and making a higher low which is a sign of an uptrend.  Support on crude oil prices are seen near the 10-day moving average at 49.33.  Resistance is seen near the May 2017 highs at 52. Momentum on crude oil prices remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

Hurricanes Damage Rerouting Crude Shipments

Hurricane Irma and Maria hammered the Caribbean has many terminals where crude oil is stored. With damage to these terminals a lot of the fuel oil originally sent to the Caribbean will likely be rerouted to the Gulf Coast, where there is already more than enough fuel oil.

The situation, unless it changes quickly, which is unlikely, could have a dramatic effect on fuel oil prices. The spike in prices came in the wake of Hurricane Harvey, when supply was limited and traders were eager to fulfill their orders. Naturally, this premium spurred greater interest in spot deals with the cargoes shipped to Houston. With supply swelling so fast, the backwardation could fast become contango making prompt prices less attractive.

The Bank of Japan Kept Rates Unchanged

The Bank of Japan kept interest rates unchanged and maintained a positive view of the economy, say that the economic recovery will gradually accelerate inflation towards its 2% target without additional monetary stimulus.  The Central bank’s new board member Goushi Kataoka dissented to the BOJ’s decision, as he believes there is a need for more accommodation, saying current monetary policy was insufficient to push inflation up to 2% during fiscal 2019. The BOJ maintained the 0.1% it charges on a portion of excess reserves that financial institutions park at the central bank. The decision was made by an eight-to-one vote.

U.S. Philly Fed Index Rose

U.S. September Philly Fed manufacturing index rose 4.9 points to 23.8, better than forecast, following the 0.6 point dip to 18.9 in August. After surging 19.7 points to a 33-year high of 43.3 in February, the index had fallen in five of the last seven months. The components were mixed. The employment component dipped to 6.6 from 10.1, and is a little less than half of the 13.5 six-month average. The workweek slid to 11.9 from 18.8, and compares to the 15.9 average. New orders rose to 29.5 from 20.4. Prices paid jumped to 34.4 from 21.1, with prices received at 22.8 from 13.5. The 6-month general business activity index climbed to 55.2 from 42.3 and is the best since March. The future employment index was dipped to 30.1 from 33.1, with new orders at 56.9 from 49.1, capital expenditures at 39.0 from 39.2, with prices paid at 46.2 from 34.8, and prices received at 31.7 from 40.4.

Canada wholesale shipments grew 1.5% in July following a revised 0.6% decline in June. The bounce in July shipment values was contrary to expectations for a sizable decline. Sales values improved in five out of seven subsectors. Building materials and supplies along with the food, beverage and tobacco subsectors drove the increase in total shipment values during July. Total sales volumes surged 2.1% in July, supportive of an expansion in GDP during the month. We had tentatively projected a 0.1% gain in July GDP going into this report, due to the drop in factor shipment volumes. The hefty gain in wholesale shipments underpins the 0.1% July GDP projection, and sharply reduces that chances that growth was flat in July.

U.S. Jobless Claims Dropped

U.S. initial jobless claims fell 23k to 259k in the week ended Sep 16, after tumbling 16k to 282k in the September 9 week. The 4-week moving average moved up to 268.75k from 262.75k. Continuing claims surged 44k to 1,980k in the September 9 week following the prior week’s 15k drop to 1,936k.