Crude Oil Prices Consolidates as Iran Pumps Record Output

Crude oil prices were lower on Tuesday ahead of Wednesday’s EIA inventory report. Prices closed on their highs on Monday following Netanyahu’s statement that the Israeli’s had proof that Iran was trying to build a nuclear weapon. On Tuesday, crude oil gave back some of its gains. Ahead of potential sanctions Iran is pumping at record rates.

Technicals

Crude oil prices were down more than 1.3% on Tuesday and appear to be consolidating in a relatively tight range.  Support is seen near the former breakout level at 66.66, while resistance is seen near the 10-day moving average at 68.20. Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

Iran’s crude oil exports reached a record

Iran’s crude oil exports reached a record 2.617 million barrels a day in April, according to its oil ministry’s the highest level since Iran signed the nuclear deal with global powers that now hangs in the balance as U.S. President Donald Trump threatens to pull out of the agreement.

Iran exported record-high volumes of crude oil and condensate of 2.877 million barrels a day to Asian and European markets, Shana reported. The largest traditional oil customers of Iran China, India, South Korea, and Japan purchased more than 60% of the Iranian oil export cargoes last month. China and India alone imported around 1.4 million barrels a day of Iranian oil in April, according to Shana. Iran’s crude oil exports last month beat the previous record of 2.44 million bpd from October 2016.

President Trump has until May 12 to decide whether to waive the sanctions on Iran. Many analysts expect that he will not waive the sanctions this time, although the impact on Iranian oil exports is difficult to quantify and it is difficult to predict when possible sanctions would kick in.

The ISM Manufacturing Index was Weaker than Expected

The ISM Manufacturing index showed that national factory activity dropped to a reading of 57.3 last month from 59.3 in March. The survey’s prices index increased 1.2 points to 79.3, the highest reading since April 2011. Last month, price increases occurred across 17 of 18 industry sectors. The ISM’s measure of factory employment dropped in April and the ISM said there were indications that labor and skill shortages were affecting production output.

Construction spending tumbled

Construction spending tumbled 1.7% in March. February data was revised to show construction spending increasing 1.0% instead of the previously reported 0.1% gain. Economists had forecast construction spending accelerating 0.5% in March. Construction spending rose 3.6% on a year-on-year basis.

U.S. reports revealed a slight under-performance for personal income relative to consumption in March that unfortunately narrowed the income-consumption gap of Q1 though a lower income path, though we still expect a big “real” consumption bounce through Q2. There was a flat PCE chain price figure in March that beat the 0.1% CPI drop, though with the same 0.2% core price gains for both, and with respective increases that rounded from 0.034% and 0.153%. We saw small but divergent April moves in the Chicago PMI and Dallas Fed gauges, to 57.6 and 21.8 respectively, with strength in the Dallas component data and annual revisions that lifted the recent uptrend. There is a sustained strength across the producer sentiment measures in 2018 despite some April drop-back for some measures from lofty Q4-Q1 readings. The pending home sales report was a modest disappointment, with a lean 0.4% rise from a downwardly revised February figure.