Crude Rebound and is Steady After Breaking Out

Crude oil prices tested lower levels after breaking out on Wednesday.  Prices rose on Wednesday as Saudi Arabia confirmed that 1mm barrels per day would not be exported in May to the United States. While imports to the U.S. dropped in the latest week, inventories unexpectedly increased.  OEC revised up its expectations for non-OPEC supply by 80K barrels per day and revised its demand forecast by 30K barrels per day.

Technicals

Crude oil prices initially moved lower on Thursday testing the breakout level near 66.66, but bounced toward the close to trade nearly unchanged.  Target support is s 50% Fibonacci retracement of the 2013-2016 move which comes in near $69 per barrel. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occur as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

OPEC Upped Demand

The OPEC Monthly Oil Market Report, showed that the cartel revised up its expectation for non-OPEC supply this year by 80,000 barrels per day from the previous month’s assessment, on the back of higher-than-expected production in the first quarter, mostly in the United States and in the former Soviet Union. Non-OPEC supply is expected to rise by 1.71 million bpd year-on-year in 2018, compared with 900,000-barrels per day growth in 2017.

Non-OPEC supply is “now expected to grow at a faster pace”, OPEC said, noting that the key driver is the U.S. with expected increase of 1.5 million bpd, followed by a distant second Canada with 290,000 barrels per day and Brazil with 210,000 barrels per day growth.

In terms of demand, OPEC revised higher its forecast for world oil demand growth by 30,000 bpd compared to last month’s assessment. The cartel now expects global demand growth at 1.63 million barrels per day this year.

“This mainly reflects the positive momentum in the OECD in the 1Q18 on the back of better-than-expected data, and supported by development in industrial activities, colder than-anticipated weather and strong mining activities in the OECD Americas and the OECD Asia Pacific,” OPEC said in its report, which is more upbeat about demand growth than the March MOMR. Total oil consumption this year is seen at 98.70 million bpd with total world oil demand breaking a historical threshold of 100 million barrels per day in Q4.

The OECD commercial oil stocks, whose five-year average OPEC is officially targeting in the production cut deal, were 43 million barrels above the latest five-year average, according to preliminary data for February. Crude stocks indicated a surplus of 55 million barrels, while product stocks were in a deficit of 12 million barrels below the five-year average, OPEC estimates.

OPEC’s crude oil production for March dropped by 201,400 bpd compared to February, to average 31.96 million bpd, according to OPEC’s secondary sources. This was the cartel’s lowest production in one year, as Venezuela’s output continued to plummet, Saudi Arabia cut 46,900 bpd from its February level; and Angola and Libya also registered big declines. The UAE, on the other hand, boosted production by 44,900 barrels per day from February, secondary sources data showed.

U.S. March import prices were flat with export prices 0.3% higher. For February revisions, the 0.4% rise in import prices was bumped down to 0.3%, with no change to the 0.2% export price gain. As for the 12-month pace, import prices accelerated to 3.6% year over year versus 3.4% year over year which was revised from 3.5% year over year, with export prices at 3.4% year over year from 3.2% year over year which was revised from 3.3% year over year. For import prices, petroleum declined further, slipping 1.3% from -0.8% previously. Import prices excluding petroleum edged up 0.1% versus 0.4%. With the exception of food prices (0.6%) and capital goods (0.1%), small declines were seen across the remaining components. Import prices with China were 0.1% higher from 0.2%, and with Canada were -0.1% from 0.2%. For exports, agricultural prices climbed 3.4% from 0.6% previously. Export prices excluding ag were down 0.1% from 0.2%.