Crude Oil Price Analysis for July 6, 2017

David Becker

Updated Wed, Jul 5, 2017, 6:14 PM

Crude broke its streak of seven consecutive higher daily highs, falling to $46.10 lows after topping at one-month highs of $47.29 on Tuesday. Profit taking was prompted by a Reuters report saying OPEC June exports were up 450k bpd from May, and up 1.9 million barrel a day from a year ago. The increase in supply was largely from Libya and Nigeria, which are not bound by the OPEC/NOPEC production cut agreements.

Technicals

Crude oil prices were hammered but rebounded off session lows finding support near the 10-day moving average at 44.69. Resistance is seen near the 50-day moving average at 47.29. Momentum remains positive as the MACD (moving average convergence divergence) index prints in the black with an upward sloping trajectory.

The Rally in Crude Comes to a Halt

The rally in oil prices over the past two weeks came to a halt on Wednesday on news that OPEC is actually exporting more oil than previously thought. A month ago, oil prices appeared to be higher than they should have been, with weak demand, elevated inventories, and a recognition that the nine-month OPEC extension would be inadequate to balance the market. Oil sold off and dropped to the mid-$40s and below. Oil traders then bought on the dip, and bid prices back up over the past two weeks.

According to Reuters data, OPEC exports jumped again in June, the second consecutive month of rising exports. Everyone tends to pay attention to the production data, but the volume of exports is arguably much more important. Reuters says that OPEC’s oil exports rose to 25.92 million barrels per day in June, an increase of 450,000 bpd from May.

More importantly, OPEC’s exports are actually 1.9 million barrels per day higher today than they were a year ago, despite the highly-touted compliance rate with the collective production cuts. Reuters columnist Clyde Russell calls OPEC’s efforts to balance the oil market “an exercise in self-deception.” It appears that OPEC is exporting just as much oil as it was before the November deal was announced, according to a Reuters analysis of oil tanker data.

Canadian Housing Prices Rise

Vancouver housing prices expanded 7.9% year over year in June, while new home listing fell 2.6% year over year. The benchmark home price grew 1.8% month over month in June to C$998.7k. But residential sales fell 11.5% year over year in June, and were down 10.8% versus May of 2017. Vancouver implemented a 15% tax on foreign buyers last August, and activity moderated. Toronto, or course, implemented a 15% foreign buyer tax beginning in late April. Sales in the Greater Toronto region tumbled by 20.3%. But the Ontario government says that non-resident buyers accounted for only 4.7% of home buying in the Toronto area from April 24 to May 26, which suggests that foreign buyers have not been the driver of the housing boom. Consequently, it remains uncertain that these tax measures will drive sustained moderation in the housing market.

Commodity Prices Contracts

The RJ/CRB commodity index is 1.3% lower near 175.50 as the energy sector smackdown pulls commodities lower more broadly and complicates the Fed’s inflation shortfall once more. Other indices like the Rogers International are even lower, having fallen 1.5%. Gold has been fairly rangebound above recent lows of $1,218, consolidating near $1,223, suggesting that the CRB moves have been more energy sector related.

UK June PMI Services Drop

The UK June services PMI missed expectations slightly, dipping to a 53.4 headline reading after 53.8 in May. The median forecast had been for a 55.5 print. Following the disappointing manufacturing and construction PMI reports, the composite June PMI headline worked out at 53.8, ebbing from 54.3 in May. Markiet, the compiler of the surveys, said it is “clear that the economy is losing momentum” going into the second half of the year, with optimism and new business growth readings in decline. Political uncertainty following the shock election outcome in early June, with consequential emergence of a fragile minority government, has been a factor. The pound has sunk to respective three- and five-session lows versus the euro and dollar in the wake of the data release today.

U.S. Factory Goods Disappoint

The U.S. factory goods data were disappointing, with price-led May declines for shipments, orders, and inventories of nondurable goods after small downward April revisions, alongside small upward adjustments in the available durables data for orders, shipments, and equipment, though with weaker inventories. The May data still show a transportation and defense-led orders drop with lean inventories and resilient shipments. Inventories have yet to recover from the big 2015-2016 petro-hit, beyond last year’s Q3-Q4 bounce that was mostly reversed in Q1. The market expects a 0.3% May business inventory rise, given inventory gains of 0.3% for wholesalers and 0.6% for retailers in the advance indicators report. The factory inventory-to-sales (I/S) ratio remained at 1.38 for a third consecutive month, versus a 1.43 cycle-high in December of 2015.

This article was originally posted on FX Empire