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Crude Oil Prices Analysis for June 27, 2017

By:
David Becker
Published: Jun 26, 2017, 18:38 UTC

  WTI crude topped at $43.65, after closing at $43.14 on Friday. The contract has since eased back closing off the highs of the session. A modest

Crude Oil

 

WTI crude topped at $43.65, after closing at $43.14 on Friday. The contract has since eased back closing off the highs of the session. A modest bounce in the dollar prompted some oil selling, though with demand expectations remaining relatively steady for H2 2017, focus remains on the supply side of the equation. The U.S. rig count continues to rise, with U.S. production up around 10% over the past year. This has undercut the OPEC/NOPEC production cuts to an extent, and forecasts for a balanced market continues to be pushed further out into 2018. The Saudi’s are beginning to cut back on production that is exported to the U.S. which is helping to buoy prices.

Technicals

Crude oil prices continued were higher for the 4th consecutive trading session, attempting to bounce following the decline WTI experienced during most of June.  Prices are down more than $4 per barrel, and last week broke through trend line support which coincides with the 10-day moving average which is seen as resistance near $44 per barrel.  The first level of target support was last week’s lows at $42 per barrel. A break of this level would lead to a test of the August 2016 lows at $39.19.

Negative momentum is decelerating per the changes seen in the MACD (moving average convergence divergence) histogram. The index is printing in the red but the trajectory is moving higher which reflects consolidation.

The RSI (relative strength index) which is a momentum oscillator that measures accelerating and decelerating momentum, is moving higher with price action reflecting accelerating positive momentum. The RSI has moved from oversold territory into the neutral territory and is currently printing a reading of 34, which is in the lower end of the neutral range. This price action is somewhat bullish and could forecast a bounce.

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Hedge Funds Add to Short Positions

Hedge fund traders added to short positions in futures and options and reduce long position according to the latest commitment of trader’s report released for the date ending June 20, 2017. According to the CFTC, managed money increased short position in futures and options by 42.5K contracts while reducing long position in futures and options by 18K contracts.  Open interest that is long futures and options still outnumbers open interest that is short futures and options in the managed money space by a robust 135K contracts.

Saudi Arabia Decreases Exports

Saudi Arabian crude export loadings in April had dropped materially. The Saudi’s in mid-June announced that they would reduce exports to Asia and the United States.  This strategy would reduce imports into the U.S. and show up in the weekly inventory report. The Saudi’s are hoping this strategy buoys prices. Given the journey time to US shores the expectation was that we would start to see lower volumes reflected in the June data. Sure enough, as we prepare to exit June stage right, arrivals are on the decline.

Imports to the U.S. are Declining

Imports of Saudi barrels into the U.S. so far this month have dropped below one million barrels per day for the first time since last November. Although U.S. imports of Saudi crude are still averaging higher than year-ago levels so far this year, this is in part due to strong arrivals in the first few months of the year offsetting recent weakness.

Imports into the U.S. are below 900,000 barrels per day with less than a week of the month left. Volumes during February through May where equal to last year.

This scenario is also playing out in Asia, where the Saudi’s also announced cuts to exports. Exports to Asia are now at their lowest levels seen since 2014.  Just as we saw U.S. imports spiking in January as Saudi ramped up export loadings at the end of last year, we see exactly the same trend in Asian volumes. Imports popped over 5mn barrels per day in January, and fizzed around 4.5 million barrels per day in recent months. To counter the supportive influence of the above data, we are seeing Saudi exports rebounding thus far in June. Not only that, but export loading have also picked up this month from many different countries while higher Libyan and Nigerian production is reflected through in higher exports.

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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