Crude Oil Rebounds as Venezuela Fails to Deliver

Crude oil prices rebounded slightly but remains below resistance.  News that Venezuela was unable to deliver contracted volumes of crude oil helped buoy prices.  Traders await Wednesday’s EIA inventory report which is expected to show an inventory draw.

Technicals

Crude oil prices rebounded from session lows but was unable to bounce back above prior support now resistance which is a downward sloping trend line at 66.  Support on crude oil is seen near the April lows at 61.61. Momentum is negative as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a downward sloping trajectory. Prices are oversold as the fast stochastic generated a crossover buy signal in oversold territory which points to higher prices.

Venezuela’s state oil company PDVSA Could Not Deliver Contracted Oil

Venezuela’s state oil company PDVSA has told eight foreign clients it will be unable to supply the contracted volumes of crude oil. “Among the affected clients due to the low availability of crude to export are Nynas, Tipco, Chevron, CNPC, Reliance, Conoco, Valero, and Lukoil, which will partially receive the volumes established by the contracts”. The amount the company will not be able to supply is close to half of the total committed volumes of this grade, Merey 16, for June. It only has 578,000 barrels a day of the grade available, while the total contracted volume is 1.271 million barrels daily. PDVSA’s total crude commitments for the month stand at 1.495 million barrels per day, but it only has 694,000 barrels a day available.

Plagued by mismanagement, corruption, and most recently a lack of investment money under the double weight of U.S. sanctions and lower oil prices, PDVSA has seen its production plummet over the last couple of years. Estimates are that this plunge has wiped out as much as 900,000 barrels per day from the company’s daily production, with the latest daily average standing at 1.41 million barrels per day in April.

Canada labor productivity fell 0.3% in Q1 after the 0.2% gain in Q4. Hours worked climbed 0.5% in Q1 after the 0.2% increase in Q4. GDP slowed to a 0.2% pace in Q1 from the 0.4% rate of increase in Q4. Unit labor costs moderated to a still firm 0.7% growth rate in Q1 after posting back to back 1.3% gains in Q3 and Q4. While the decline in Q1 productivity was more pronounced than expected, the report is broadly as expected, with a contraction in productivity as hours worked accelerated and GDP slowed, while unit labor costs slowed from the relatively lofty growth rates in the second half of last year to a still strong pace in Q1 as the underlying labor market conditions continue to tighten.

U.S. NABE 2018 Economic Outlook survey was generally upbeat

U.S. NABE 2018 Economic Outlook survey was generally upbeat on the economy through 2019. However, respondents were “slightly less optimistic” on the economy this year than they were in the prior survey three months ago, in part due to trade policies. Average annual GDP growth for 2018 is projected at 2.8%, down fractionally from 2.9% previously, though it’s still up considerably from the 2.5% pace projected in the December survey. Fiscal stimulus is seen as supportive and is expected to increase growth by about 0.4% this year and 0.3% in 2019. But NABE warned that 57% of respondents see 2018 growth risks are weighted to the downside, with 71% seeing inflation risks weighted to the upside. Some 73% see the current trade policies as having a negative effect on growth.