Crude Oil Price Analysis for August 8, 2017
Crude oil prices consolidated and were rangebound on Monday, as news that OPEC production continued to increase. Exports should be on the decline which would lead to reduce U.S. inventories. The dollar gained traction on Friday, following the stronger than expected U.S. payrolls report but did not follow through and consolidated on Monday. A stronger dollar could weigh on crude oil prices as oil is quoted in dollars, and a stronger dollar makes crude oil more expensive in foreign currency.
Technicals
Crude oil prices were range bound, making a higher high and a higher low, and closing down 0.8% on the session. Prices are nearly unchanged in August as trader’s wrestle with export cuts by Saudi Arabia and how that will effect U.S. inventories. Resistance on crude oil is seen near the August highs at 50.43, while support is seen near the August lows at 48.50. The weekly chart of crude oil prices show a small consolidative range where prices are forming a bull flag, which is a pause that refreshes higher. Positive momentum is decelerating. The MACD (moving average convergence divergence) histogram is printing in the black with a downward sloping trajectory which points to consolidation and a potential crossover sell signal.
Output From OPEC Continues to Rise
Libya and Nigeria are pumping oil near highs for the year and have pushed OPEC’s crude oil output in July to the highest this year, at 32.82 million barrels daily according to index provide Platts. The cartel is reporting its production figures this Thursday, following their meeting of OPEC and non-OPEC producers on Monday and Tuesday. Platts reported that production from Libya and Nigeria, which are two countries in OPEC that are exempt from the cuts agreed to last November, went up by 210,000 barrels per day in July, with Libya pumping about 990,000 barrels per day and Nigeria producing 1.81 million barrels per day. Saudi Arabia, produced 10.05 million barrels per day in July. The output increases by Libya and Nigeria are offsetting production cuts by other OPEC and non-OPEC members which is reducing market share and are weighing on prices.
Nigeria has agreed to stop increasing its output once it reaches a steady daily average of 1.8 million barrels per day which should allow the markets to find an equilibrium. Libya, however, has announced no plans to limit production growth for the time being.
Platts also reported figures, based on tanker tracking data, which shows that OPEC’s output last month had jumped to 920,000 barrels per day above the nominal production ceiling of 31.9 million barrels per day the cartel set itself last year. An earlier forecast from Reuters saw OPEC July oil output 90,000 barrels per day higher than in June, again thanks to higher Libyan production.
The Dollar Edged Lower on Bullard’s Dovish Comments
Fed’s Bullard believes current rates are about appropriate for the near term. But, he’s a bit worried about the still low inflation rate, as recent data have “surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target.” That’s a relatively dovish view from the nonvoting president who continues to twist between a hawkish and dovish outlook, largely on the winds of inflation. Of importance, though is his disagreement with the Phillips Curve orthodoxy that suggests low unemployment contributes to higher inflation, saying there is little relationship. He expects the economy to grow at about a 2% rate, but noted the pick up in global growth. Those factors, including improved European activity and the potential for a more hawkish ECB, have weighed on the dollar. The comments on policy and inflation should allow gravity to push Treasury yields lower.
The EIA Reports Changing Seasonal Demand for Distillates
The EIA reported that seasonal demand for distillates such as heating oil have changed because of increases in exports. The EIA said that “changes in demand trade patterns, and fuel specifications have significantly reduced the role of traditional seasonal factors in driving U.S. distillate markets. Historically, distillate use in the United States was highly seasonal because of its use as a home heating fuel. In recent years, use of distillate as a heating fuel has decreased significantly, while its use as a transport fuel has remained relatively flat. Distillate stocks, which were traditionally drawn down during winter in recent years, have shown little change or even have built over the October-March winter heating season. However, exports of distillate fuels, a growing portion of the overall disposition of U.S. distillate production, have actually become more seasonal in recent years, but because the net export peak occurs in the summer months, this change serves to offset the winter peak in domestic heating demand.”
This article was originally posted on FX Empire
