Crude Oil Price Analysis for September 23, 2017

Crude oil prices closed at a fresh 3-month high, solidly above the 50 mark, despite no decision from OPEC on additional production cuts. This week saw a larger than expected draw in products reported by the Energy Information Administration, which could lead petroleum higher heading into the fall and winter.  Baker Hughes reported a decline in active oil rigs for the 3^rd consecutive week, which is helping to buoy prices.

Technicals

Crude oil prices closed higher on the session climbing 0.18% and generating and inside day, which is a lower high and a higher low which reflects indecision. Support on crude oil is seen near the 10-day moving average at 49.64. Resistance is seen near the May highs near 52. Momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices. The RSI (relative strength index) consolidated near 62, which is on the upper end of the neutral range and also reflects positive momentum.

OPEC Came to No Decision

OPEC met on Friday to consider the possibility of extending the production cuts beyond March 2018. The meeting was uneventful, with no decision taken regarding recommendations on extending or deepening the production cut deal. The recent uptick in oil prices will provide OPEC members with a bit of confidence as they sort out their next steps, but pitfalls remain for 2018. While oil markets did not react too negatively to the lack of news, all eyes will be on OPEC as the production cut deal nears its agreed upon deadline.

Oil Rig Count Continues to Decline

Baker Hughes the oil services giant reported that the number of active U.S. rigs drilling for oil fell for a third week in a row, down 5 to 744 this week. The total active U.S. rig count, which includes oil and natural-gas rigs, declined by 1 to 935. Oil rigs in the United States now number 744—326 rigs above this time last year. Although the number of oil rigs are still up significantly year on year, the increases slowed in the Q2 2017, and have reversed in Q3.

North Korea and the U.S. Continue Their Rhetoric

Prices seemed unaffected by the rhetoric going back and forth between the U.S. and North Korea. Pyongyang has threated to detonate an Hyrdogen-bomb in the Pacific. North Korea’s foreign minister, Ri Yong-ho, speaking from New York where he is due to address the UN assembly at the weekend, said that “it could be the most powerful detonation of an H-bomb in the Pacific,” adding that “we have no idea about what actions could be taken as it will be ordered by leader Kim Jong-un.” Kim Jong-un earlier said that Trump would “pay dearly” for threatening to destroy his regime, saying he would retaliate at the “highest level.” North Korea tested an H-bomb earlier in September at its nuclear test site in the north-east of the country, which caused a 6.3 magnitude earthquake.

Retail Sales and PPI Were Weaker than Expected in Canada

Canada retail sales rose 0.4% in July after the 0.1% month over month gain in June. The ex-autos sales aggregate improved 0.2% in July after a revised 0.4% gain in June which was +0.7%. The improvement in total sales was as-expected, but the ex-autos sales aggregate undershot expectations. Notably, sales volumes fell 0.2% month over month in July, contrasting with the monthly gains seen from January to June of this month and threatening the outlook for a modest gain in July GDP.

Canada CPI grew 0.1% in August month over month after the flat reading in July. CPI accelerated to a 1.4% annual growth pace in August from the 1.2% year over year rate of expansion in July. The CPI-trim grew at a 1.4% year over year pace in August from 1.3% year over year in July, the CPI-common was up 1.5% year over year from 1.4% and the CPI-median was 1.7% versus an identical 1.7%, year over year gain in July. The pick-up in month comparable and annual CPI growth undershot expectations for more pronounced gains. The modest improvements in two out of the three core measures was roughly as expected.