Crude Oil Rebounds as Traders Focus on June OPEC Meeting

David Becker
Crude Oil daily chart, May 30, 2018
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Crude prices rebounded as the dominant narrative has remained unchanged this week, being centered on last week’s indications from Russian and Saudi Arabia that the output curtailment accord will be softened, with global crude inventories back to long-term averages and demand holding strong. With the OPEC meeting coming in June some believe that OPEC could reduce production moving forward. Softer than expected U.S. GDP data did little to derail Wednesday’s rebound. Trader’s now await Thursday EIA inventory report which is delayed one day due to the Memorial Day Holiday.

Technicals

Crude oil prices rebounded more than 2.25% bouncing off support near an upward sloping trend line that comes in near 65.90.  Resistance is seen near the 10-day moving average at 70.40. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is negative as the MACD which was moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices.

June OPEC Meeting Takes Center Stage

June’s OPEC meeting is anticipated by analysts, with the potential of a crash in oil prices if Saudi Arabia and Russia decide to ramp up production. Officials confirmed that Moscow and Riyadh are discussing a 1 million barrel per day production increase. This, however, stands in contrast to remarks by Khalid Al Falih, Saudi Minister of Energy, and his Russian counterpart Alexander Novak, that a discussion is ongoing though the parameters have not yet been discussed.

While oil prices crashed, the very vague statements by the two proponents of the current OPEC/non-OPEC production deal should be seen as a more direct way of stating “we will not be doing anything, except if the market needs it”. What analysts tend to forget is that the statement came after an accusation tweeted by U.S. president Donald Trump, who blamed OPEC for keeping prices ‘’artificially very high’’.

U.S. Q1 GDP Gained Less than Expected

U.S. Q1 GDP posted a 2.2% growth in the second look at the indicator, versus the 2.3% rate from the Advance report, and the 2.9% clip from Q4. Personal consumption expenditures were revised to a 1.0% gain compared to the 1.1% clip in the Advanced reading and 4.0% in Q4. Business fixed investment rose 6.5%, faster than the prior Q1 reading of 4.6%, and versus the 8.2% from Q4. Government spending was up 1.1% compared to 1.2% from the Advance Q1 and 3.0% in Q4. Inventories added only $4.6 billion versus the prior $17.5 billion contribution, following the $22.9 billion drop in Q4. And net exports added only $3.0 billion compared to $8.0 billion in the Advance report and the $56.4 billion Q4 decline. The price indexes showed the headline slipping to 1.9% from the 2.0% pace from the initial Q1 reading and 2.3% in Q4, with the core rate at 2.3% versus the 2.5% on the Advance report and 1.9% in Q4.

U.S. goods trade deficit was -$68.2 billion in the Advance April report, slightly narrower compared to the -$68.6 billion deficit in March which was revised from -$68.0 billion. Exports slipped 0.5% to $139.6 billion versus the 3.2% jump in March to $140.3 billion which was revised from $140.6 billion. Imports also declined 0.5% following the prior 1.5% drop to $207.8 billion which was revised from $208.9 billion. Also, Advance wholesale inventories were unchanged at $629.4 billion from $622.2 billion which was revised from $628.8 billion, with Advance retail inventories up 0.6% to $633.5 billion from $630.0 billion which was revised from $625.6 billion.

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