Crude Oil Price Analysis for February 16, 2018

Strong demand and solid manufacturing gains has helped crude oil prices rebound back to resistance levels. Wednesday’s mixed inventory data showed strong U.S. production offset solid demand.  Refineries are paring down their utilization rates ahead of the beginning of the gasoline season.

Technicals

Crude oil prices rebounded back to resistance near the 10-day moving average 61.53.  Support on crude oil is seen near the February lows at 50. Negative momentum is decelerating as the MACD (moving average convergence divergence) histogram prints in the red with an upward sloping trajectory which points to consolidation. The fast stochastic has moved from oversold territory to neutral territory while generating a crossover buy signal.

Refineries are Reducing Utilization

The Department of Energy reported that U.S. crude oil refinery inputs averaged about 16.2 million barrels per day during the week ending February 9, 2018, 635,000 barrels per day less than the previous week’s average. Refineries operated at 89.8% of their operable capacity last week. This is a shoulder period when refineries wind down and begin to prepare for production during gasoline season. Expectations should be for crude builds and product draws. Imports continue to remain depressed. Over the last month, crude oil imports averaged about 8.1 million barrels per day, 5.0% less than the same four-week period last year. This was someone offset by an increase in crude oil production by 20K barrels a day taking the total up to 10.27 million barrels a day.

U.S. February Empire State manufacturing index fell

U.S. February Empire State manufacturing index fell 4.6 points to 13.1 after sliding 1.9 points to 17.7 in January. But, the internals were generally solid. The employment index tripled to 10.9 from 3.8, with the workweek rising to 4.6 from 0.8. New orders increased to 13.5 from 11.9. Prices paid rose to 48.6 from 36.2, with prices received little changed at 21.5 from 21.7. The 6-month general business conditions index increased to 50.5 from 48.6, but employment declined to 19.5 from 26.9, new orders were generally flat at 47.2 from 47.6, with prices paid at 52.1 from 52.9, and capital spending at 31.9 from 34.8.

U.S. Philly Fed manufacturing index rose

U.S. Philly Fed manufacturing index rose 3.6 points to 25.8 in February, better than expected, after falling 5.7 points to 22.2 in January. The 35.5 reading from last May was the high for the year, and the best since the 36.4 from March 2011. Strength was broad-based. The employment component climbed to 25.2 from 16.8, though the workweek slid to 13.7 from 16.7. New orders more than doubled to 24.5 from 10.1. Prices paid rose to 45.0 from 32.9, but prices received dipped to 23.9 from 25.1. The 6-month general business index edged down to 41.2 from 42.2, with employment at 40.4 from 34.9, new orders at 49.1 from 46.2, prices paid at 65.2 from 54.2, and capital expenditures at 40.4 from 36.2. The rise in the prices paid component could add to the markets’ fear of rising inflation.

U.S. initial jobless claims rose 7k to 230k in the week ended February 10 after dropping 7k to a revised 223k in the prior week. That left the 4-week moving average at 228.5k versus 225.0k previously. Continuing claims increased 15k to 1942k in the February 3 week, after dropping 29k to 1,927k in the last week of January (revised from 1,923k).

Australia employment grew in January

Australia employment grew 16.0k in January after a revised 33.5k gain  in December. The gain was close to expectations. But full time employment fell 49.8k versus a 12.7k gain. Part time jobs jumped 65.9k after a 20.7k gain. The unemployment rate dipped to to 5.5% from a revised 5.6%. Yet the participation rate slipped to 65.6% from 65.7%. The details of this report are disappointing. The full time jobs plunge underpins expectation for no change from the RBA through the middle of this year.

Canada Inflation Catching-Up to the U.S.

Canada Inflation Catching-Up to the U.S. Underlying inflation growth improved in Canada and the U.S. through the end of 2017, underpinning the rate hikes seen so far this year and the expectations for further increases. But inflation growth is far from alarming despite the ongoing improvement in economic growth — consistent with a gradual approach as the Fed and BoC lift rates this year. Meanwhile, underlying inflation is slowly making a comeback in the EU, setting the stage for a gradual taper in Q4 from the ECB and an end to net asset purchases in December.