Crude Oil Price Analysis for September 11, 2017

Oil prices tumbled on Friday after gaining traction for most of the week.  Prices were unable to take out resistance and feel on Friday despite heavy demand for gasoline and diesel. Refiners have come back on line, increasing demand for crude oil.

Technicals

Crude oil prices tumbled, after attempting to breach resistance levels near a downward sloping trend line that comes in near 49.50. Support on crude oil comes in near the 10-day moving average at 47.60. Prices remain in a relatively tight range and have been unable to break through a topping pattern, despite disruptions in oil imports caused by Hurricane Harvey and Hurricane Irma. Momentum is positive as the MACD (moving average convergence divergence) index prints in the black with an upward sloping trajectory which points to higher prices.

Oil Rig Count Continued to Decline

Baker Hughes the Oil Service giant reported that U.S. oil and gas producers added one drilling rig last week, bring total count to 944. Oil rig count decreased by three weeks over week to 756, while the natural gas rig count grew by four to 187. Meanwhile, the U.S. offshore rig count is flat week over week and down two year over year. Baker Hughes rig count is now up 436 rigs since this time in 2016, with oil rigs up 342, natural gas rigs up 95 and miscellaneous rigs down one.

Higher Gasoline Prices Could Generate Demand Destruction

The Hurricane season has been one to remember, but it can continue well into October, which could generate issues for the energy sector.  Gasoline prices soared at the end of August, but the change to winter grade gasoline has created some relief which has allowed prices to move lower. There is now an issue with oil storage facilities as Hurricane Irma has shut in oil storage complexes that are located in the Caribbean.  With U.S. refiners coming back on line, oil demand will quickly pick up, generating demand for light sweet oil that is stored in these locations.

Platts is reporting that two oil storage complexes in the Caribbean with capacity of more than 18 million barrels of oil, have been shut in.  S&P says that the terminal on St Eustatius has been damaged, and NuStar which operates the facility is unsure when the terminal will be up and running.

Ahead of the Hurricane Irma gasoline demand has skyrocketed as consumers rushed to fill up and get out of dodge.  Florida generally gets most of its products by sea. Gasoline could be shipped through the colonial pipeline from Houston, but with refiners down from Hurricane Harvey, there was a dearth of supply. With Florida terminals shut in, prices will likely rise.

Unfortunately, two more storms are brewing in the region, with the U.S. National Hurricane Center expecting Jose to intensify to a major hurricane of category 3 or higher. The other one, Katia, is in the Gulf of Mexico, expected to reach the Mexican coast by the weekend.

This is the time of year that consumers generally expect relief in prices, as the summer driving season ends, and people go back to work. The customer will be pinched by this unexpected turn of events, which could eventually cause demand destruction.

Saudi Will Cut Crude Oil Allocations

Saudi Aramco will cut crude allocations to its buyers by 350,000 barrels per day in October. Saudi Arabia is required to cut production by 486,000 barrels per day in compliance with last November’s OPEC deal to reduce international crude supplies by 1.2 million barrels per day. In Asia, supply cuts will total 1.8 million barrels, with Japan being the main target. Supplies to the United States will fall to 600,000 barrels per day as well. Riyadh has been on a mission to reduce American inventories in order to solicit large crude orders from the world’s largest energy consumer.

The EIA reported that U.S. crude oil refinery inputs averaged 14.5 million barrels per day during the week ending September 1, 2017, about 3.3 million barrels per day less than the previous week’s average. Refineries operated at 79.7% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.5 million barrels per day. Distillate fuel production decreased last week, averaging 4.5 million barrels per day.

Inventories This Week Were Mixed

Inventories were mixed as expected.  The EIA revealed that U.S. commercial crude oil inventories increased by 4.6 million barrels from the previous week. This compares to expectations of a 3-million-barrel increase. Gasoline inventories decreased 3.2 million barrels last week, while distillate fuel inventories decreased by 1.4 million barrels last week. Total commercial petroleum inventories increased by 7.0 million barrels last week.

Demand remained solid. Total products demand over the last month averaged about 20.8 million barrels per day, up by 0.2% from the same period last year. Over the last month gasoline demand averaged over 9.5 million barrels per day, down by 1.0% from the same period last year. Distillate fuel demand averaged about 4.1 million barrels per day over the last month, up by 9.9% from the same period last year.