Crude Oil Price Analysis for September 18, 2017

 

Petroleum prices are breaking higher, as strong demand and slowing supply are driving price action.  Gasoline demand, especially in Florida, is soaring just as supply has been choked off in the wake of Hurricane Harvey and Irma.  The International Energy Agency also sees slowing global supplies which have helped buoy prices.

Technicals

Crude oil consolidated on Friday after breaking out on Thursday. Prices formed an inside day which is a lower high a higher low which reflects indecision. Support is seen near former resistance which is the breakout level at 49.40. Momentums on crude oil prices is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

Demand Surged Higher

Ahead of Hurricane Irma, Floridians took to the road, escaping south Florida in record numbers. The mass evacuation buoyed demand, just as supply was cut off from the peninsula. Florida receives the bulk of its gasoline deliveries, via marine vessels, which are brought in through terminals and then trucked to pipeline locations.  The demand for gasoline occurred in the wake of Hurricane Harvey which significantly reduced the supply of gasoline.  Nearly 25% of U.S. refinery operations were cut off following Hurricane Harvey, making it difficult for Florida to receive gasoline from Gulf Coast Refineries.  Supply is finally on its way, but demand remains robust as residence get back on the road to go home, if there is one still there.

The IEA Sees Declining Production

Prices have also been buoyed by comments from the IEA. The International Energy Agency said that global oil supply fell in August for the first time in four months, because OPEC’s oil production declined. World oil supply fell by 720,000 barrels per day in August compared to July.

In additional to the disruptions to U.S. production from Hurricane Harvey and Irma,  OPEC also saw its collective output fall by 210,000 barrels a day in August, mainly from disruptions in Libya. The supply outages will go a long way toward adding some momentum to the rebalancing effort, even if some of them are only transitory. The agency singled out the fact that U.S. oil production declined in June from a month earlier, an unexpected development.

U.S. Empire Manufacturing Stabilized at Higher Levels

U.S. September Empire State manufacturing index dipped 0.8 points to 24.4, after surging a surprising 15.4 points to 25.2 in August, which was the highest level since September 2014’s 30.2. The small give-back suggests last month’s surge wasn’t that fluky. Most of the key components gained. The employment index improved further to 10.6 from 6.2 previously and 3.9 in July. But the workweek basically halved back to 5.7 after rising to 10.9 from July’s unchanged. New orders rose to 24.9 from 20.6. Prices paid increased to 35.8 from 31.0, with prices received at 13.8 from 6.2. The 6-month general business activity index slipped to 39.3 following the climb to 45.2, with employment at 13.8 from 9.3, new orders at 43.7 from 41.3, and prices paid at 42.3 from 33.3, while capital spending was 24.4 from 11.6.

Russia Cut Interest Rates, and Needs Higher Oil Prices

Russia cuts interest rates, and leaves door open for further easing. As expected the Russian central bank cut its benchmark rate by 50 basis points to 8.50% today. The central bank has now shaved a total of 1.5 percentage points off the benchmark rate since March and the statement left the door open to further cuts ahead.

Canadian Household Debt to Income Rose

Canada’s household debt to income ratio rose to 167.8% in Q2 from 166.6% in Q1, marking another record high. Household income grew 1.2% in Q2 while credit market debt grew 1.9%. The actual level of household debt continues to trend higher, while debt relative to income also has tracked higher still. Elevated debt levels, a strong job market and the elevated child tax benefit have helped fuel the surge in consumption seen this year, with the GDP’s consumption measure expanding at a 4.6% pace in Q2  after the 4.8% pace in Q1.