Crude Oil Prices Analysis for August 9, 2017

Crude oil prices moved lower by 0.7%, after testing resistance following news that Saudi Arabia appears to have leaked news that it will cut crude oil allocation to its customers worldwide in September by at least 520,000 barrels per day. If this is the case, it means that the Saudi’s will have gone a step farther in trying to reduce global inventories outside of the kingdom. State oil giant Saudi Aramco will cut supplies to most buyers in Asia, the leading consuming continent, by up to 10% in September to comply with a producers’ deal to cut output. While the Saudi’s are not reducing output, they are reducing the amount of oil that is exported. Once inventories decline, they will have the flexibility to increase exports. That is reportedly the first cut to Asia since the cartel production-reduction pledge. Supplies to Europe and the U.S. will also be reduced, the sources said, according to the report. Total supply from the Organization of Petroleum Exporting Countries, including Saudi Arabia, hit a 2017 high in July. A stronger dollar is also weighing on prices.

Technicals

Crude oil prices are consolidating, but remain in a relatively tight range, chopping around above support which was former resistance, that appears to be a bull flag pattern. This is a pause that eventually refreshes higher. Resistance is seen near last week’s highs at 50.43. Support is seen near a downward sloping trend line at 48.50.  Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the black with a declining trajectory which reflects consolidation. The
RSI (relative strength index) moved lower in tandem with price action which reflects accelerating negative momentum. The current reading of 57, is in the middle of the neutral range and reflects consolidation.

Chinese Trade Data Disappointed

Chinese trade data disappointed, missing expectations which could be a sign of slowing growth. According to China’s General Administration of Customs, exports grew by 7.2% year over year in US dollar denominated terms, missing forecasts for an increase of 10.9%. That was also below the 11.3% increase previously reported in June. Imports rose by 11% year over year in USD-terms, again undershooting forecasts for growth of 16.6%. They previously grew by 17.2% year-on-year in June. China’s trade surplus with the United States stood at $25.2 billion, down marginally on the $25.4 billion level of June.

JOLT’s Report Hits Record

Stronger than expected jobs data buoyed the dollar and weighed on oil prices. Today’s U.S. JOLTS report showed that the number of openings grew to 6.2 million on the last day of June 2017, a record high, according to the Labor Department. This represents an increase from 5.7 million on the last business day of May. The June number is the highest reported since the Labor Department began tracking the series in December 2000. The previous monthly job openings record was set in July 2015. For the month of June, the Labor Department reported hires and separations were little changed at 5.4 million and 5.2 million, respectively. Job openings grew in June most notably across professional and business services by 179,000, with health care and construction industries increasing the second and third most at 125,000 and 62,000, respectively.

Business Optimism Soared

U.S. NFIB small business optimism index rose 1.5 points to 105.2 in July, rebounding from June’s 0.9 point drop to 103.6. This is the highest reading since hitting 105.3 in February. The percentage of firms planning to hire rose to 19% from 15% previously, and those anticipating a better economy improved to 37% from 33%. with those seeing a good time to expand at 23% from 21%. Those seeing higher selling prices jumped to 8% from 1%. Plans to increase capital spending dipped to 28% from 30%. The data are a little better than expected, as has been the case for several other July sentiment readings.

Consumer Credit Rose

U.S. consumer credit rose $12.4 billion in June following the $18.3 billion May increase which was revised from $28.4 billion. Non-revolving credit increased $8.3 billion, continuing to lead the strength in consumer borrowing, after the $11.4 billion jump in May which was revised from $11.0 billion. Revolving credit was up $4.1 billion versus the prior $6.9 billion gain which was revised from $7.4 billion. Credit slowed a bit in Q2, rising $42.9 billion, after the $447.1 billion Q1 increase.