Crude oil prices continue to trade off of yearly highs, but have failed to breakout significantly for the 2017 trading year. As such, traders continue to wait for a market catalyst to cause the commodity to breach key values of either support or resistance. Key news for this week includes the release of US employment data this Friday. Expectations for US NFP (Feb) is set at +190k, while the US Unemployment Rate is set to be released at 4.7%.
Technically the price of crude oil remains in an ongoing daily trading range, which is depicted below. Current daily resistance remains located at the January 3rd 2017 peak at $55.67. Alternatively, crude oil prices remain supported above the January 10th low at $51.34. As prices continue to ping between these values, traders may continue to reference these points for a potential market breakout.
Monday’s trading has prices in the middle of this $4.33 range. Currently short term momentum is pointed lower, with the price of crude remaining under the 10 Day EMA found at $53.63. If prices continue to decline this week, traders may look for crude oil to return to support and potentially breakout lower. In the event of a bearish breakout, traders may use a 1x extension of this range to find preliminary pricing targets near $47.01. Alternatively if prices remain supported, traders may look for crude oil to bounce and retest resistance at the standing 2017 high. In this scenario, bullish breakout targets for crude oil may be identified near $60.00.
In the event that prices fail breakout, traders may elect to trade the continuing range or look for opportunities elsewhere.
An oil pump jack in the oil town of Gonzales, Texas.
U.S. crude oil seems to be going nowhere but the weekly New York mercantile Exchange l chart for West Texas Intermediate tells a different story. The chart shows consistent bullish behaviour even though price has developed a temporary resistance level near $54. The sideways movement that has been in place since 2017 January has lulled some observers into a false sense of security when it comes to the potential for further increases in the oil price.
The weekly NYMEX Oil chart shows a long term inverted head and shoulder reversal pattern. This trend reversal pattern is reliable and has a high probability of reaching the projected price breakout targets.
This is a long-term trend reversal pattern that started in mid-2015 and which was confirmed towards the end of 2016. It is best seen on the weekly price chart.
The head and shoulders are shown with the curved lines. The sustained sideways move above $50 in the current uptrend confirms the inverted head and shoulder pattern and the continuation of the slow uptrend.
The depth of the head and shoulder pattern between the neckline and the head is measured and the value projected upwards. This gives a long term upside target near $68. This target is verified using the second chart feature that sets the character of the NYMEX oil chart.
The second feature is the historical pattern of support and resistance levels. The rebound from support near $48 is part of this pattern behavior. Resistance is near $58. A breakout above this level gives a medium term target near $68.
The historical resistance level near $58 is the most significant resistance level for any trend change. The level was broken in 2015 June but the breakout was overwhelmed by the wide separation in the long term Guppy Multiple Moving Average. This is not the situation today. Now the long term GMMA is acting as a support level and the move towards $58 is slow and steady.
The long term GMMA provides an indication of the way investors are thinking. The steady separation of the long term group of averages shows confident support for the new uptrend.
The short term group of averages provides an indication of the way traders are thinking. The consistent steady separation confirms strong confidence in the trend strength. Any pullback in price is taken as a buying opportunity. This is shown by the lack of compression in the short term GMMA when prices pull back.
The successful breakout above $48 is moving slowly to the historical resistance level near $58. This offers short term trading opportunities which can be exploited using the ANTSSYS method to trade the consolidation behavior. The breakout above $58 has a resistance target near $68 and this helps validate the head and shoulder price projection target.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.
That figure tops the former record of 512.095 million barrels for the week ended April 29, 2016.
“The continued growth in the stocks of crude is due to higher production in U.S. shale plays and imports that exceed the volume needed by refiners,” said James Williams, energy economist at WTRG Economics.
“We have enough petroleum inventory to cover close to 70 days of consumption, when the historical norm is well below 60 [days],” he said. The Organization of the Petroleum Exporting Countries is “trying to reduce it, but the effect of [its] efforts are not showing up in the U.S.”
MarketWatch asked several analysts how stockpiles managed to reach an all-time high, even as domestic crude production currently stands at 8.977 million barrels a day—below the record peak output of 9.61 million last seen during the week ended June 5, 2015.
Here are the reasons they came up with (in unranked order):
• Strong imports: “The real driving force has been the surge in imports,” said Troy Vincent, oil analyst at ClipperData.
‘The real driving force has been the surge in imports.’
The EIA on Wednesday report that crude imports for last week averaged 8.5 million barrels, down 881,000 barrels a day from a week earlier. However, over the last four weeks, they have climbed 9.9% vs. the same period a year earlier.
Matt Smith, director of commodity research at ClipperData, said that the U.S. saw nearly 10% more waterborne imports in 2016 than the year before.
“Bargain-basement prices for foreign oil in the last year have been too difficult for U.S. refiners to ignore,” he said. “We will likely see this trend ebb in the months ahead, as OPEC imports fall off—yet U.S. production is rising again to plug the gap.”
• OPEC: “Keep in mind the OPEC cut isn’t really fully felt inside the USA just yet,” said Nico Pantelis, head of research at Secular Investor.
But the “transit time between the countries where the USA is importing a large part of its oil from is several weeks, so cargoes arriving from the Middle East are still geared towards a full production rate in Saudi Arabia,” said Pantelis, noting that 11% of U.S. imported oil comes from Saudi Arabia.
The market will see lower import numbers materializing in the next few weeks, he added.
• Reduced refinery runs: U.S. crude-oil refinery inputs averaged about 15.5 million barrels a day last week—that’s 435,000 barrels per day less than the previous week and down about 390,000 barrels from the year-ago level, according to the EIA.
Refinery utilization stood at 85.4% of capacity, down from 87.7% a week earlier and 88.3% a year earlier, data showed.
That means there’s less crude headed to, and being processed at, the refineries.
• U.S. production: Charles Perry, chief executive officer of energy-consulting firm Perry Management, summed this up well: “the rise in [crude] inventories is due to increase in domestic drilling driven by good economics for domestic production.”
Weekly U.S. crude-oil production at just under 9 million barrels a day has a ways to go before reaching any records, but domestic output has generally been climbing since the second half of 2016 as oil prices for West Texas Intermediate CLH7, -0.19% and Brent crude LCOJ7, -0.13% climbed to levels they hadn’t seen in more than a year.
The EIA has estimated that more than half of U.S. production comes from shale oil.
A monthly report from the government agency released Monday showed expectations for a month-on-month increase of 80,000 barrels a day in March shale oil production.
And oil-rig count data from Baker Hughes BHI, +0.00% point to even more output gains ahead.
• Rise in oil company spending: “Several North American oil producers have increased their [capital expenditure] budgets in the final quarter of last year, and this resulted in a corresponding production increase, which is boosting the inventory levels,” said Pantelis.
Exxon Mobil Corp. XOM, +0.41% announced in late January that it plans to spend $22 billion this year, 14% higher than the amount it spent in 2016.
• Demand slowdown: S&P Global Platts estimated Chinese oil demand growth of 1.3% in 2016 to 11.35 million barrels a day, but that was down from 6.6% growth in 2015, when price declines boosted demand.
Reuters calculated Chinese oil demand growth of 2.5% in 2016, based on official data—a three-year low—down from 3.1% in 2015.
“Two years of OPEC overproduction to defend market share and the introduction of 4.5 million barrels [from 2007-08 levels] of incremental U.S. [lower 48 states] production that transpired concurrently with a slowdown in the rate of China oil demand as well as OECD oil demand, brought us to current record inventory levels,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors.
Oil prices slide after API reports 14.2 million barrel US crude stockpile increase; gasoline stocks also rise
Crude plunges off strong dollar
Oil prices extended losses on Tuesday after an industry group reported a far larger rise in weekly U.S. crude stockpiles than anticipated.
U.S. crude oil in storage rose by 14.2 million barrels last week, according to the American Petroleum Institute. That was more than five times analysts’ forecasts for a 2.5-million barrel increase.
Gasoline stocks rose by 2.9 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.1-million barrel gain.
U.S. crude was trading at $51.72 after ending Tuesday’s trade down 84 cents, or 1.6 percent, at $52.17.
Benchmark Brent crude was down $1.03, or 1.9 percent, to $54.69 a barrel by 4:50 p.m. (2150 GMT).
Concerns that U.S. gasoline consumption is stalling weighed on futures. U.S. gasoline prices fell 2.3 percent.
Commodities tomorrow: Strong support for oil at $53
Futures were pressured on Tuesday by sluggish demand and evidence of a burgeoning revival in U.S. shale production that could complicate efforts by OPEC and other producers to reduce a supply glut.
Gasoline stockpiles rose by almost 21 million barrels in the first 27 days of 2017, compared with an average increase of less than 12 million barrels at the same time of year during the previous decade, according to official inventory data.
“It’s a supply-driven setback … We are within 2 million barrels of the record in U.S. gasoline stocks that we saw last February,” said Tony Headrick, energy markets analyst at CHS Hedging. “A strong build in inventory reports could weigh on gasoline in a seasonal timeframe where gasoline demand is weak.”
Inventory estimates from trade group the American Petroleum Institute are due on Tuesday afternoon. U.S. government data is reported Wednesday.
Gasoline futures fell below the 200 day moving average on a continuous chart, Headrick noted.
The U.S. dollar rose 0.4 percent against a basket of currencies, making dollar-denominated commodities like crude oil more expensive to holders of other currencies.
Prices have been supported for two months as the Organization of the Petroleum Exporting Countries and other exporters have tried to cut output by almost 1.8 million barrels per day (bpd) in the first half of 2017. OPEC and Russia have together cut at least 1.1 million bpd so far.
Another bullish sign emerged on Tuesday as crude oil exports from southern Iraq fell in January to 3.275 million barrels per day (bpd) from 3.51 million bpd in December, according to two oil executives.
Iraq, OPEC’s second largest producer, has been a concern among analysts because it has a harder time managing output than some other cartel members. Its leaders also raised issues with the coordinated production cuts from their inception.
‘Encouraging’ signs OPEC production has been cut back: IEA
But market players are concerned that rising U.S. production and signs of slowing demand growth could offset these efforts.
“The general perception is that OPEC is cutting production, which is supporting prices, but high stock levels, rising rig counts and growing U.S. production are capping gains,” said Tamas Varga, analyst at London brokerage PVM Oil Associates.
Societe Generale oil analyst Michael Wittner said U.S. shale oil output was recovering faster than expected.
“Rig counts are increasing at an accelerating pace, and given the technological advances of the past three years, this should translate into significant supply,” Wittner said.
“U.S. shale is coming back, and it’s coming back strong.”
U.S. oil production is expected to rise 100,000 barrels per day to 8.98 million barrels in 2017, 0.3 percent less than previously forecast, according to a monthly U.S. government report released on Tuesday.
Chinese oil demand grew in 2016 at the slowest pace in at least three years, Reuters calculations showed, the latest sign of slower demand from the world’s largest energy consumer.
Correction: This story has been corrected to reflect the total stockpile build reported by API was 14.2 million barrels.
— CNBC’s Tom DiChristopher contributed to this report.
A worker on a Nabors crude oil drill near New Town, North Dakota.
Oil prices fell on Monday as news of another increase in U.S. drilling activity spread concern over rising output just as many of the world’s oil producers are trying to comply with a deal to pump less in an attempt to prop up prices.
The number of active U.S. oil rigs rose to the highest since November 2015 last week, according to Baker Hughes data, showing drillers are taking advantage of oil prices above $50 a barrel.
U.S. crude futures settled down 54 cents, or 1 percent, at $52.63. Global benchmark Brent crude oil prices were down 32 cents at $55.20 a barrel at 2:33 p.m. ET (1933 GMT).
Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg, said “three factors that have been weighing on prices: the stronger U.S. dollar, the steady increase in U.S. rig counts and the (latest OPEC compliance data).”
When it comes to oil, don’t forget about demand: Expert
First indications of compliance to that deal show members have cut production by 900,000 barrels per day (bpd) in January, according to Petro-Logistics, a company that tracks OPEC supply.
That suggests only 75 percent of the targeted cuts would be met, said Tony Headrick, energy analyst at CHS in Minnesota.
“There’s an apprehension about how big that cutback is going to be versus the strength in U.S. crude production,” Headrick said. “That gap is a little narrower than folks had anticipated more recently.”
Tamas Varga, analyst at PVM Oil Associates in London, said the news was “not very encouraging” because it implied that only 75 percent of the OPEC production cut target was being met.
What’s next for big oil?
Oil prices have remained above $50 a barrel since producers agreed the deal in December, incentivising drillers in low-cost U.S. shale producing regions to ramp up activity.
“In our view the strong rise in U.S. shale oil rigs is a good thing because it will be needed over the next three years as non-OPEC, non-U.S. crude production continues to be hurt by the deep capex cuts both past and present in that segment,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.
He estimated the U.S. rig count will continue rising at a rate of seven rigs per week over the first half of the year.
Analysts at J.P. Morgan said they saw a rise in oil prices beyond $60 a barrel in 2018 as unlikely.
“For prices to be supported above $60/bbl in 2018 would likely require continued OPEC output reductions that continue to tighten the market beyond Q3’17 – something that looks unlikely at this juncture,” they said in a report to clients.
Iran’s oil minister Bijan Zanganeh said on Monday he expected oil prices to remain at around $55 a barrel this yes, according to Mehr news agency.
Production from offshore Norway slumps in December, though full-year output recorded another consecutive year of gains, government data show. File Photo by A.J. Sisco/UPI
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STAVANGER, Norway, Jan. 17 (UPI) — Total production of oil and gas in Norway dipped in December, though full-year output increased for the third year in a row, the government reported.
The government reported total preliminary production of oil, natural gas liquids and an ultra-light form of product called condensate at close to 2.1 million barrels per day on average for December, a 3 percent decline from November’s levels.
Norway is among the leading oil and natural gas suppliers to the European economy apart from Russia. Preliminary data for November showed a 2 percent increase from October.
Despite the dip of about 60,000 barrels per day in December, the Norwegian Petroleum Directorate said full-year 2016 production was higher than the previous year, even as lower crude oil prices put negative pressure on the industry as a whole.
“The oil production increased for the third consecutive year in 2016, and gas production was at the same level as the previous year, which was a record year for production,” the national regulator stated in its monthly report. “The high level is in part due to good regularity on the fields, and the fact that various efficiency measures have led to substantial reductions in operating and exploration costs.”
The full-year production figures follow confirmation from the NPD of a new discovery made by Norwegian energy company Statoil in the northern waters of the Norwegian Sea. Preliminary estimates put the size of the discovery at around 17 million barrels of oil equivalents at the low end.
NPD Director General Bente Nyland said last week that oil and gas production remained high and companies have adjusted well to a sea change in the energy sector brought on by lower crude oil prices. Cost reductions for some developments of as much as 50 percent, meanwhile, mean companies will remain profitable provided the industry shows a degree of patience.
The figures add to a lingering market scenario of oversupply. Members of the Organization of Petroleum Exporting Countries agreed to a short-term 2017 production ceiling of around 32.5 million bpd in an effort to pull the market back into balance.
Crude oil prices have turned modestly lower for Friday’s trading, narrowing any gains seen for the commodity earlier in the week. Prices have specifically stalled as traders are beginning to call into question the production cuts previously promised by OPEC nations. Oil prices have initially strengthened into 2017 on expectations of these productions cuts, so any data to the contrary may cause crude oil to decline further off of the standing yearly high at $55.21.
Technically crude oil remains in a long term uptrend, as the commodity continues to trade above its 200 day SMA (Simple Moving Average). This average now stands at $47.24, which continues to stand as long term support for the commodity. Traders should be mindful however, that crude prices are now trading back below the displayed 10 day EMA (exponential moving average) at $52.61. Typically this is a sign of short term weakness, and if crude stays below this point it may suggest a further slide in price starting next week.
It should also be noted that today’s intraday price action has crude oil set to end the trading week with the creation of an inside bar. If the commodity closes at present values, crude oil would have failed to create a new high or low for today’s session. This means breakout traders may use Thursday’s high and low as values of support and resistance to plan for the markets next breakout.
Bullish breakouts may begin for crude oil above Thursday’s high of $53.47. A breakout above this point would place crude back above the previously mentioned 10 day EMA, and open up the market to retest the standing yearly high. Alternatively, Thursday’s low of $52.10 remains a key value of price support. A bearish breakout here would suggest that crude is retracing more of its previous gains, and open up a test of the standing 2017 at $50.69.
Analysts at BBH shared his views on the crude oil market and its recent developments, “Oil prices rallied yesterday following the EIA weekly data and are up further today. Despite the rise in US inventories (4.1 mln barrels) more than four times greater than expected, participants focused on other details. In particular, the stocks in Cushing fell by almost 580k barrels, while the market had been looking for an increase of around the same magnitude. Also, the 17.4 mln barrel demand by refineries was the most in nearly 30 years.”
Key Quotes “The bullish case for oil was predicated on rising demand, OPEC cuts and a natural decline in output in some countries, like Mexico. China’s economy appears to be stabilizing (with a continued robust increase in credit expansion. Europe growth appears to have accelerated in Q4. Earlier today, EMU reported industrial output jumped 1.5% in November, more than twice what was expected. Even if the output was flat in December, the industrial output is set to expand in Q4 by the most since Q4 2010. Japan’s November industrial output rose 1.5%, the most in five months. India’s output surged 5.7% year-over-year in November after contracting 1.8% year-over-year in October.”
“What has captured the attention of the markets today are the reports indicating that Saudi Arabia (and Kuwait) have cut output more than they were committed to delivering. The Saudi oil minister announced that output has fallen below 10 mln barrels for the first time in almost two years. Kuwait also reports that its output is a little less than it committed to as well.”
“At least for the moment, this addresses a nagging concern of many market participants that OPEC’s adherence to their agreements is often questionable. Of course, the risk of defections from the agreement increase as the price of oil increases. Also, the participation of non-OPEC countries, especially Russia, has yet to be seen. At the same time, US output is increasing. At 8.95 mln barrels a day, US output is the highest since last April. US producers have added about 100 new rigs since the end of Q3. Recall too that in 2015 and early 2016 some well were drilled, but then capped as if the producer was storing the oil in the ground.”
“The February light sweet oil futures contract set a low set on Tuesday and Wednesday (~$50.70) that met a 50% retracement objective of the rally since the OPEC agreement. It also matches the low from December 8. Prices have bounced smartly. However, the $53.50 area, which is being tested, needs to be overcome to suggest another run at $55.”
Iraq, OPEC’s second-largest producer, said it would raise crude exports from its main Basra port to an all-time high in February. The country’s southern oil exports in the first nine days of January held steady near a record high, despite the agreed start of OPEC cuts on Jan. 1, according to a source and loading data.
“The petroleum markets are consolidating at the lower levels reached in Monday trade after doubts emerged over the degree of compliance with OPEC production cuts as Iraqi exports remain high, as well as the more general pace of market rebalancing,” Tim Evans, energy futures specialist at Citigroup said in a note.
“Fresh reports that non-OPEC producers Russia and Kazakhstan have reduced output have produced little price reaction, with the failure to rally on bullish news suggesting that the market is overbought and vulnerable to a further downward correction.”
Oil markets to continue tightening: Expert
U.S. light crude oil settled down $1.14, or 2.2 percent, at $50.82. That was its weakest daily closing level since Dec. 7.
Brent crude was last down $1.26 a barrel, or 2.3 percent, to $53.68.
Both crude contracts fell more than $2 a barrel, or around 4 percent, on Monday on doubts that the Organization of the Petroleum Exporting Countries (OPEC) and other key oil producers would cut output as promised to try to reduce a global oversupply.
The dollar rose on Tuesday, retracing early losses against a basket of currencies, and pressuring greenback-denominated oil as a stronger dollar tends to discourages buying by consumers holding other currencies.
Higher oil future prices through December encouraged investors to buy large volumes of crude contracts and many of these “long” positions are likely to be unwound unless the market stays strong, analysts and brokers said.
Supplies are also increasing in North America.
The U.S. Energy Information Administration revised its forecast for 2017 U.S. crude output, expecting growth of 110,000 barrels per day compared with last month’s forecast of a 80,000 bpd year-over-year decline.
JPMorgan: Remain constructive on EU oil
In the United States, energy companies last week added rigs for a 10th week in a row, extending the drilling recovery into an eighth month as crude prices remained at levels at which many U.S. drillers can operate profitably.
The average Canadian rig count for December 2016 was 209, up 36 from the 173 counted in November 2016, and up 49 from the 160 counted in December 2015, said Matt Stanley, a fuel broker at Freight Services International in Dubai.
“A 30 percent increase in Canadian rigs in a year … The bear in me is well and truly back,” Stanley said.
Weekly inventory data from industry group the American Petroleum Institute (API) is scheduled at 4:30 p.m. EST, with analysts forecasting a 1.2 million-barrel build in U.S. crude stocks in the week to Jan. 6.
Adding one-off supplies, the U.S. Department of Energy on Monday announced a sale for crude from its Strategic Petroleum Reserve (SPR), with bids for 8 million barrels of light, sweet oil due by Jan. 17.
— CNBC’s Tom DiChristopher contributed to this report.
After generating positive results last week amid traders’ optimism over the production cut from major producers, including Saudi Arabia and Kuwait, crude oil prices came back under pressure in Monday’s trade, thanks to the threat of increasing Iran’s exports and rising U.S. supplies. Iran started increasing its exports over the last couple of months from oil held in tankers at sea.
Iran sold almost 13 million barrels of crude oil held in tankers at sea, indicating a smart move of enhancing its market share, when fellow producers are slashing their supplies. While Iran’s biggest rivals, including Saudi Arabia and Kuwait, announced production cuts of 485,000 and 131,000 barrels per day respectively for the first quarter this year.
Iran’s strategy of selling oil held at sea could have negative repercussion over the production cut agreements between 24 countries. Brent crude oil prices were trading almost 13 cents lower in Asian trade on Monday from the recent settlement, while U.S. West Texas Intermediate oil prices were trading 20 cents lower from earlier close.
The threat of rising of U.S. production is also weighing on crude oil prices, as traders are realizing that North American producers are making a stronger than expected comeback.
U.S. oil rig counts have increased since summer of the last year. Last week, Baker Hughes reported a 10th straight week of growth in U.S. oil rig counts to the highest level in the last 13 months. U.S. oil production increased mostly at a mid-single digit rate in the last six months, thanks to improving prices and declining break-even points.
U.S. producers have slashed their break-even levels to below $50 a barrel, settling strong footholds to expand volumes at current oil prices. Therefore, U.S. producers are ready to make a strong rebound in the coming days, which could stun the market participants. Several U.S. producers have announced increased spending plans for FY2017 after significant cuts in the last three years.