Crude Oil Price Analysis for March 16, 2018

Crude oil prices edged higher on Thursday, despite a stronger dollar. Prices increased by nearly 0.4%, as it now appears that Russia could pull out of the OPEC oil production deal. With Russia being accused of poisoning former spies on British soil, a lot of bad blood is simmering. Crude oil prices remain rangebound, waiting for a catalyst to drive prices higher. This week’s inventory report showed large draws in products which were offset by a strong build in crude oil.

Technicals

Crude oil prices moved higher but were unable to recapture resistance near the 10-day moving average at 61.40. Support is seen near an upward sloping trend line that comes in near 60.75. Prices are range bound and storing energy waiting for either a breakout or a break down. Momentum as reflected by the MACD (moving average convergence divergence) histogram is negative as the index prints in the red with a declining trajectory which points to lower prices. The fast stochastic generated a crossover buy signal, which reflects accelerating positive momentum. The crossover occurred in the middle of the neutral range which reduces the upward bias of the crossover.

Russia Could Pull Out of OPEC Deal

Russia could pull out of the OPEC oil production cut deal before the end of 2018 as it has no obligation to stick with it, Iran’s Energy Minister, Bijan Zanganeh said. Russia “has no commitment to stay with it by the end of the year and OPEC may choose to alter the plan which I think would be unlikely,” Zanganeh said. So far Russia has kept its obligations under the deal, although Energy Minister Alexander Novak has mentioned that the deal may end sooner than December 2018 if the oil market rebalances. Russia aimed to cut 300,000 barrels per day from its record-high daily production rate for October 2016, which averaged 11.2 million barrels a day.

In the latest edition of its Monthly Oil Market Report, OPEC said that non-cartel production would cover oil demand growth this year. Non-OPEC supply “is now expected to grow at a faster pace, leading also to an upward revision in year over year growth to average 1.66 million barrels a day, compared to the previous MOMR,” OPEC said, noting that the key growth drivers will be the U.S., Canada, Brazil, and the UK.

Manufacturing Should Buoy Oil Demand

U.S. Philly Fed manufacturing index fell 3.5 points to 22.3 in March following February’s 3.6 point bounce to 25.8. The index was 31.6 a year ago, and over the last 2 years has ranged from 35.5 to -4.2. The employment index edged up to 25.6 from 25.2, with the workweek at 12.8 from 13.7. New orders climbed to 35.7 from 24.5. Prices paid dipped to 42.6 from 45.0, with prices received at 20.7 from 23.9. The 6-month general business index increased to 47.9 from 41.2. The future employment index slid to 37.1 from 40.4, but the workweek rose to 21.8 from 14.7, while new orders declined to 48.8 from 49.1. Prices paid dipped to 62.8 from 65.2 with prices received at 51.3 from 49.5. Capital expenditures were 35.9 from 40.4.

U.S. Empire State manufacturing index bounced

U.S. Empire State manufacturing index bounced 9.4 points to 22.5 in March after February’s 4.6 point drop to 13.1. This breaks 4 straight months of declines after hitting 28.1 in October. It was 14.6 a year ago and over the last 2 years has ranged from a high of 28.1 to a low of -7.6. The employment index dipped to 9.4 from 10.9, with the workweek rising to 5.9 from 4.6. New orders improved to 16.8 from 13.5. Prices paid extended higher to 50.3 from 48.6 and is the highest since early 2012. The 6-month index fell to 44.1 from 50.5, with the employment component up at 23.3 from 19.5. The future new order index dipped to 43.0 from 47.2, prices paid rose to 55.9 from 52.1, with capital expenditures at 29.4 from 31.9, and technology spending at 18.9 from 23.6.

U.S. MBA mortgage market index rose

U.S. MBA mortgage market index rose 0.9% in data released earlier, along side a 3.4% surge in the purchase index and 2.2% decline in the refinancing index for the week ended March 9. The average 30-year fixed mortgage rate rose another 4 basis points to 4.69%, the highest level since January 2014, with the February payrolls report delivering solid headline gains combined with tame hourly earnings.