Crude Oil Reverses Rally After Hitting 40-month High

Crude posted a new 40-month high of 69.56 before reversing course and settling on the lower of the session. Price gains where initially ignited by ongoing drop in U.S. crude inventories to five-year average levels, and news, from sources that Saudi Arabia is looking for oil prices to rise above $80.0. There is also a possibility that the U.S. will re-introduce sanctions on Iranian oil exports.

Technicals

Crude oil hit a fresh higher and was rejected closing on the lows of the session. Support is seen near the 10-day moving average at 66.16. Additional support is an upward sloping trend line that comes in near 63.25. The fast stochastic generated a crossover sell signal in overbought territory which is a sign of accelerating negative momentum. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Oil Prices Initially Surged on Robust Inventory Data

Oil prices were following the EIA weekly U.S. inventories report and a media report that Saudi Arabia would be pushing for oil prices to go as high as $100 a barrel, following reports from last week that it was aiming for $80. The EIA report on Wednesday showed a 1.1 million barrel draw in crude oil inventories and a gasoline stockpile draw of 3 million barrels, compared with a half-a-million-barrel increase in the week before. Distillate inventories were also down, by 3.1 million barrels, after a weekly draw of 1 million barrels in the prior seven-day period.

Oil prices are also supported by the geopolitical risk premium, with the possibility of fresh sanctions on Iran and Venezuela spiraling further into crisis both threatening to take more barrels of supply from the market in the coming months.

Manufacturing Rose which Should Buoy Oil

The Philly Fed rose to a solid 23.2 from 22.3 in March and 25.8 in February, versus a 2-year high of 35.5 in May of 2017 and a 3-year low of -10.3 in February of 2016. We saw a smaller than expected drop in the ISM-adjusted Philly Fed to a 59.7 from a 45-year high of 61.8 in March but a lower 56.3 in February, versus a 13-year high of 60.3 in March of 2017. Monday’s Empire State headline fell to 15.8 from 22.5 in March but a lower 13.1 in February, versus a 3-year high of 28.1 last October. The ISM-adjusted measure fell to 56.2 from 57.3 in March but a lower 55.0 in February, versus an 11-year high of 57.4 last September. The ISM-adjusted average of the major surveys to slip to 57 from a 58 cycle-high in February and March that was also seen in December, and previously in both September and October, versus 57 in January and November. Producer sentiment is enjoying a lift from fiscal stimulus with tax reform and the new budget that is likely filling the void of reduced disaster rebuilding, alongside ongoing support from the mining and factory resurgence and a stronger global economy.

Canadian Employment Surged

Canada ADP employment showed a 42.8k gain in March payrolls following the 16.2k drop in private sector payrolls during February (was 32.7k). Goods employment grew 30.3k in March after a 4.9k decline in February. Service sector jobs improved 12.5k on the heels of a 21.1k gain. The labour force survey, released at the beginning of this month, revealed a 32.3k improvement in total jobs during March after the 15.4k rise in February. Goods sector jobs rose 21.7k and service sector jobs gained 10.6k. Private sector payrolls fell 7.0k in March after an 8.4k rise, contrasting with the ADP’s tally.