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Crude Oil Price Analysis for October 23, 2017

Crude oil prices rebounded on Friday, after initially testing lower levels. This week the EIA reported a larger than expected draw in inventories, but the rising dollar weighed on prices. OPEC has been moving inventories back into balance, and with distillate stocks in the United States near the bottom end of the 5-year range, prices could be buoyed by strong distillate demand.

Technicals

Crude oil rebounded from its lows of the session and closed up on the day, recapturing resistance which is now support near the 10-day moving average at 51.24. Resistance is seen near a downward sloping trend line that comes in near 53.10. Momentum is neutral as the MACD (moving average convergence divergence) histogram is printing in the black with a flat trajectory which reflects consolidation.

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Heating Oil Demand is Rising

Residential heating oil prices are rising despite warmer than normal temperatures that are covering most of the United States. There are different scenarios that will play out depending on the relative coldness of the 2017-18 winter. The EIA forecasts this results and with heating oil stocks at the low end of the 5-year range, crude oil prices could be driven by distillates, and making it so refiners focus on distillates and leave gasoline production lower than expected ahead of the spring.

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During the past few winters, 2013–14 and 2014–15, the cold weather drove up heating oil demand and depleted days’ supply by the end of the season. Obviously a warmer than normal winter would generate the opposite scenario. With the variability in mind, the EIA performed an analysis to determine demand based on as 10% increase or decrease in cooling demand relative to a historical average. In the 10% colder-than-forecast winter scenario, the EIA projected average household heating oil expenditures are $397 (32%) higher than last winter.

In a scenario were the EIA forecasts heating oil prices to be 33 cents per gallon (14%) higher than last winter and consumption to be 16% higher. In the 10% warmer-than-forecast scenario, which would still be colder than last winter, projected expenditures are $57 (5%) higher than last winter. In this case, the heating oil prices are forecast to be 20 cents/gal (8%) higher than last winter and consumption 4% lower.

As of October 16, 2017, the Energy Information Administration reported that residential heating oil prices averaged $2.66 per gallon, nearly 1 cent per gallon more than last week and 27 cents per gallon higher than last year’s price now. The average wholesale heating oil price for this week is just under $1.89 per gallon, almost 6 cents per gallon more than last week and just over 20 cents per gallon higher than a year ago.

Canadian Retail Sales Fell in August

Canada retail sales fell 0.3% in August month over month after the 0.4% gain in July. The ex-autos sales aggregate tumbled 0.7% following a 0.2% rise. A 2.5% decline in food and beverage store sales, which followed four straight monthly gains, more than offset as expected expansion in motor vehicle and parts and gasoline station sales. Yet sales declines were widespread in August, afflicting 8 of 11 subsectors. The decline in total sales and the ex-autos aggregate were contrary to expectations for further growth in both indicators during August. Total retail sales volumes dropped 0.7% month over month in August.

 

Canada CPI Grew in September

Canada CPI grew at a 1.6% year over year pace in September following the 1.4% pace in August. CPI climbed 0.2% month over month after a 0.1% rise in August. The growth rates for September were as expected. CPI-trim grew at a 1.5% year over year pace in September after a 1.4% year over year clip in August. CPI-median was up 1.8%, the same as the revised 1.8% year over year in August. CPI-common expanded 1.5%, identical to the 1.5% year over year gain in August. Total inflation continues to pick-up from the year low 1.0% pace seen in June, while the core indexes drift higher as well. Inflation growth remains below the BoC’s 2.0% target, but it is moving in the desired direction.

This article was originally posted on FX Empire

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