Crude Oil Price Analysis for March 19, 2018
Crude oil prices surged higher on Friday, rebounding to the highs of the week, despite an increase in the number of active rigs report this week by Baker Hughes. Rig counts have declined for 4-consecutive weeks, but robust production and strong exports are incenting drilling.
Technicals
Crude oil prices surge higher by 1.75%, but was unable to close above trend line resistance that comes in near 62.40. Support is seen near the 10-day moving average at 61.50. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs 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). The fast stochastic also recently generated a crossover buy signal, which reflects accelerating positive momentum.
U.S. Production Growth Could Test 11-Million Barrels a Day as Refiners Start to Gear Up
U.S. crude oil production is continuing to climb, and current prices support accelerating growth. In its latest inventory and production report, the Energy Information Administration reported a 20K rise in growth up to 10.381 million barrels per day. Interviews with CEO’s of shale producing companies point to declining cost structure that allows profitable production down to $20 per barrel. The current WTI price of $60 per barrel, should incent U.S. producers to increase market share and make hay while the sun is shining.
Production is Rising
The Energy Information Administration revealed in their Short-Term Energy Outlook that U.S. production of crude oil grew 5% in 2017, reaching 10 million barrels per day in the last two months of the year. The 2017 annual average of crude oil production grew by 463,000 barrels per day to 9.3 million barrels per day after declining by 551,000 barrels per day in 2016. If crude oil product was stagnant during the balance of 2018, it would still increase on average by approximately 1-million barrels a year from 9.3-million to 10.3-million.
The 2017 peak was in November which saw production eclipse 10-million barrels per day, last reached in 1970. Current levels of 10.381 million barrel per day, is a new record. EIA projects that U.S. crude oil production will continue growing in 2018 and 2019, averaging 10.7 million barrels a day and 11.3 million barrels a day respectively.
Texas has Experience the Largest Production Growth
The Permian Basin is the region that has experienced the largest growth onshore in the United States. The basic covers West Texas as well as Eastern New Mexico. Texas has experienced the largest production growth by state. The EIA reports that Permian crude oil production grew by 460,000 barrels a day from 2016 to 2017, accounting for 93% of the growth in the regions in the United States.
Demand reflected by Refiner Inputs is Poised to Accelerate
Refiner inputs surged to nearly 17.5 million barrels per day prior to Hurricane Harvey. Inputs are currently at 16-million per day, which provide ample room for further increases in U.S. production especially if imports remain at bay.
Active Rig Count Increased
Baker Hughes the Oil Service giant reported that the number of active U.S. rigs drilling for oil rose by four to 800 this week. The oil-rig count had fallen by four last week, marking their first decline in seven weeks. The total active U.S. rig count, which includes oil and natural-gas rigs, also climbed by six to 990.
Canadian Manufacturing Fell
Canada manufacturing shipments fell 1.0% in January, as expected, following a revised 0.1% dip in shipment values during December. An 8.0% tumble in motor vehicle and parts drove the decline in total shipments. The drop in motor vehicle and parts followed gains in November and December, and was due to lower production amid atypical plant shutdowns, according to Statistics Canada. Aerospace production fell 9.5% after a 4.4% gain in December, with the January decline partly due to the appreciation of the loonie relative to the dollar. A 6.5% gain in petro and coal sales was a bright spot in January, as higher prices provided a boost to the sector.
Canada saw a C$5.7 billion investment inflow from abroad in January after the C$1.5 billion divestment in December. Foreign investors focused on the money market in January, adding C$6.1 billion to their portfolios. Bonds saw a C$3.3 billion reduction after the C$4.3 billion divestment in December. Federal government bond holdings were cut by C$1.6 billion after a C$0.6 billion reduction in December. Canadians acquired C$13.3 billion in foreign securities during January after the record C$22.0 billion purchase in December. Investment abroad was driven by stock purchases, which totaled C$11.6 billion after a C$19.8 billion increase. Stock purchased were mostly in the U.S., where equities rallied 5.6% in January.
This article was originally posted on FX Empire
