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Crude Oil Prices Analysis for December 27, 2017

By:
David Becker
Published: Dec 26, 2017, 14:25 UTC

Crude Oil Tests Resistance Following Signing of U.S. Tax Cut Law

Crude Oil

Oil traders are now focusing on the ability for OPEC to rebalance the market, while shale producers attempt to increase production as prices rise into the upper 50’s.  Prices are attempting to break out, as demand for products such as gasoline and distillates are allowing refiners to operate at elevated levels.  With Trump signing a new tax cut, GDP in the U.S. could remain above the 3% mark, allowing crude oil to break into the 60’s.

Technicals

Crude oil prices are attempting to break out and are currently printing at the highest levels seen in December, poised to test the November highs at 59.05. A break of this level would lead to a test of the May 2015 highs at 62.58.  Support on crude oil is seen near the 10-day moving average at 57.66. Momentum on crude oil prices has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The MACD index moved from negative to positive territory confirming the buy signal. The MACD histogram is now printing in the black with an upward sloping trajectory which points to higher prices for crude oil.

New Tax Cut Signed

President Trump signed the $1.5 trillion tax cut package and the stop-gap spending bill, which should help make the new year merry and bright for most. Indeed, several corporations have responded with bonuses and pay hikes, and promises of capex spending. Economic activity has been expanding across the globe, while inflation has remained remarkably low, a combination which could underpin another good year for Wall Street.

U.S. Housing Prices Rose

U.S. October Case Shiller home price index rose 0.2% to 203.84 for the 20-City reading, after increasing 0.38% in September to 203.44 which was revised from 203.5. The 12-month index increased to 6.38 year over year versus the prior 6.16% gain which was revised from 6.19%. The 10-City index rose 0.23% to 217.69 following September’s 0.46% increase to 217.19 which was revised from 217.27. Prices appreciated to a 6.02% year over year from 5.66% year over year previously which was revised from 5.21% year over year. All 20 cities posted annual gains, led by Seattle which increased 12.67% year over year and Las Vegas, with Chicago and Washington bringing up the rear.

U.S. Consumer Sentiment Fell Back

U.S. consumer sentiment fell to 95.9 in the final December print from the University of Michigan survey, and is down from the 96.8 December preliminary read, and November’s 98.5. The current conditions index was 113.8 from this month’s 115.9 preliminary and the 113.5 last month. The expectations index was 84.3, compared to the 84.6 preliminary and November’s 88.9. The 12-month inflation gauge was 2.7%, down from the preliminary 2.8%, but firmer than November’s 2.5%. The 5-year rate was 2.4%, versus the 2.5% preliminary December and the 2.4% from November.

Durables Goods Underperformed

The U.S. durables report tracked estimates overall, though the orders figures underperformed while the equipment data beat estimates via upward October revisions, shipments were strong, and inventories rose. For the headlines, The November 1.3% orders rise received less of a transportation boost than expected, and we saw a 0.1% ex-transportation drop. The mix of orders and firm consumption data lifted our Q4 GDP growth estimate to 2.8% from 2.5%, with a hike in our Q4 “real” equipment spending growth estimate to 12% from 11%, after a 10.8% pace in Q3.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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