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Crude Oil Price Analysis for January 12, 2017

David Becker

Crude oil prices climbed to a fresh 3-year high following comments from OPEC that their current production deal could extend beyond 2018.  Demand continues to rise as economic growth is beginning to accelerate higher.  While inventories were mixed according to the latest report from the Department of Energy, production declined, while is allow prices to continue to hit higher levels.

Technicals

Crude oil prices hit a high of 64.77 which is a fresh 3-year high, and is poised to test the weekly Fibonacci retracement of 50% near 68.92.  Support is seen near former resistance at 62.51. Additional resistance is seen near the 10-day moving average at 61.83. Momentum is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices. The RSI is also showing that momentum is accelerating. The only caveat is that the RSI is printing a reading of 78 which is above the overbought trigger level of 70 and could foreshadow a correction.

OPEC Deal Extended?

The OPEC deal for crude oil production cuts could extend beyond 2018, the United Arab Emirates’ energy minister, Suhail al-Mazrouei has suggested. In an interview on CNBC, Al-Mazrouei said “I am expecting that this group of countries that stood and have become responsible for helping the market to correct, there is a very good chance that they could stick together and put a shape around that alliance.”

His statement comes amid a variety of scenarios on how the deal might come to an end, featuring civil unrest in Venezuela and Iran that may lead to supply disruptions; Russia pulling out of the pact in June; OPEC members and other parties to the deal starting or continuing to cheat; and oil prices rising too high.

For now, it looks like the last scenario is most likely,  there is already talk that OPEC would act if Brent tops US$70 a barrel, as this would spur faster oil production growth in OPEC’s number-one foe, U.S. shale. The talk comes amid EIA forecasts that U.S. total crude oil production could hit 11 million barrels daily by late 2019.U.S.

Production Declined

Production declined by 293K barrels this week and imports also fell. The EIA revealed that U.S. crude oil imports averaged about 7.7 million barrels per day last week, down by 308,000 barrels per day from the previous week. Over the last month, crude oil imports averaged 7.9 million barrels per day, 4.3% less than the same four-week period last year.

Inventories Were Mixed

Inventories were mixed but total inventories declined. As you would expect when refiners are running near capacity, U.S. commercial crude oil inventories decreased by 4.9 million barrels from the previous week, as crude is in high demand. Gasoline inventories increased by 4.1 million barrels last week, and Distillate fuel inventories increased by 4.3 million barrels last week, but this was offset by a further decline in propane inventories which decreased by 6.3 million barrels last week. Total commercial petroleum inventories decreased by 5.5 million barrels last week.

Demand is Picking Up

Total products demand over the last month period averaged 20.6 million barrels per day, up by 5.6% from the same period last year. Over the last month gasoline demand averaged about 9.1 million barrels per day, up by 2.5% from the same period last year. Distillate fuel demand averaged about 3.9 million barrels per day over the last four weeks, up by 6.8% from the same period last year. Jet fuel demand is up 13.4% compared to the same month last year.

PPI Declined in December

U.S. December PPI slid 0.1% on both the headline and core, with the latter softer than expected. There were no revisions to November’s 0.4%, 0.3% respective gains. The 12-month pace slowed to 2.6% year over year for the headline, versus 3.1% previously, with the core at 2.3% year over year compared to the prior 2.4% year over year. Goods prices were unchanged following the 1.0% surge in November. Energy prices were flat too, versus 4.6% previously. Food prices dropped 0.7% after the 0.3% gain. Services costs dipped 0.2% versus 0.2%.

Jobless Claims Rose More than Expected

U.S. initial jobless claims climbed 11k to 261k in the January 6 week following the 3k increase to 250k in the last week of December. That’s the highest since September 23. That brought the 4-week moving average up to 250.75k from 241.75k. Continuing claims dropped another 35k to 1,867k in the week ended December 30 after dropping 46k to 1,902k previously.

This article was originally posted on FX Empire

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