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Crude Oil Price Analysis for November 13, 2017

David Becker
Updated
Following last months positive price action, price per barrel of crude oil is likely to consolidate near or above $55 handle and trade range bound with positive bias while observing headlines relating to trade talks between major global players & upcoming OPEC summit for directional bias.

Crude has steadied below the $57 mark, topping at $57.30 in London, after basing at $56.55 after Thursday’s U.S. close. Recent gains have come with expectations that the OPEC/NOPEC production cap agreement will be extended through 2018. In addition, Reuters reported on Thursday that Saudi Arabia will cut December exports by 120k barrels per day versus November levels, also adding support to oil prices. Geopolitics may be playing a role as well, as tensions between Saudi Arabia and Iran appear to be on the rise. The rise in the Baker Hughes rig count weighed on oil prices.

Technicals

Crude oil prices consolidated but edged lower on Friday, forming a bull flag pattern, which is a pause that refreshes higher. Support is seen near the 10-day moving average at 55.83. Resistance is seen near the weekly highs at 57.92. Momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

Rigs Counts Rise

Baker Hughes weekly oil rig count revealed a 9-rig increase, to 738, the biggest increase since June, nearly negating the 11-rig drop seen last week. Production has been on the rise, and additional rigs confirms production increases.

Production Moves higher

U.S. crude oil production edged higher during the past week and at 9.62 million barrels a day, it is currently near multi-year highs. With transportation constraints in U.S. producing areas, prices of WTI are contracting relative to Brent.

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The Energy Information Administration reported in its short term energy outlook that U.S. crude oil production has increased, particularly in regions like the Permian basin, so has the need for more transportation infrastructure to accommodate it. The increase is capping the price of WTI but strong demand for crude to generate refined products is allowing the spread between WTI and Brent to widen.

EIA estimates that, without pipeline constraints, moving crude oil from Cushing to the U.S. Gulf Coast typically costs $3.50 per barrel, but it has gotten more expensive as transportation constraints have developed.

Production is Solid

EIA estimates U.S. crude oil production averaged 9.3 million barrels per day in October, nearly unchanged from the September level. Crude oil production in the Gulf of Mexico averaged 1.4 million barrels a day in October, which was 260,000 barrels a day lower than the September level. The lower production reflected the effects of Hurricane Nate. Most oil production platforms in the Gulf of Mexico had returned to operation following the hurricane, and EIA forecasts overall U.S. crude oil production will continue to grow in the coming months. EIA forecasts total U.S. crude oil production to average 9.2 million barrels a day for all of 2017 and 9.9 million barrels a day in 2018, which would mark the highest annual average production, surpassing the previous record of 9.6 million barrels a day set in 1970.

Sentiment Slipped

Michigan sentiment slipped to 97.8 from a 13-year high of 100.7 in October but a lower 95.1 in September, leaving Michigan sentiment back below the previous 13-year high of 98.5 in January. All the confidence surveys have strengthened sharply in 2017 despite moderation for some measures from Q1 peaks. The IBD/TIPP index bounced to 53.6 from 50.3 in October but a similar 53.4 in September, versus a 56.4 cycle-high in February. The weekly Bloomberg Consumer Comfort index sat at 51.5 in the first week of November, after averages of 50.8 in October and 51.2 in September. We saw a 52.5 monthly cycle-high in August and a weekly cycle-high of 53.3 in late-August. We expect a November uptick in consumer confidence to a new 17-year high of 126.0 from a prior 17-year high of 125.9 in October and 120.6 in September. Confidence, producer sentiment and small business optimism have climbed since October of 2016 in the face of a factory rebound that is trimming excess capacity, equity and home price gains, and a global growth rebound that includes an improving trajectory for U.S. GDP.

This article was originally posted on FX Empire

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