Yahoo Finance Crude Oil Price Analysis for December 11, 2017
Crude oil prices rebounded on Friday following stronger than expected payroll data which shows strong growth but soft wage growth. Solid growth will increase the demand for oil, and softer wages will help cap yields which should keep a lid on the dollar which is a good prescription for stronger prices. Imports reported this week by the Department of Energy show crude from overseas is declining which production in the U.S. is attempting to offset those losses.
Technicals
Crude oil prices rebounded on for the second consecutive trading session following Wednesday’s route in the wage of a mixed inventory report. Prices pushed higher but ran into resistance near the 10-day moving average at 57.42. Support is seen near an upward sloping trend line that connects the lows in August to the lows in October and comes in near 55.75. Momentum remains negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. The MACD histogram is printing in the red with a downward sloping trajectory which points to lower prices.
Sideways Action
While crude oil prices are trading sideways in a relatively tight range between $59 and $54 per barrel, the term structure of crude oil prices shows that traders believe the the outlook continues to remain upbeat. With OPEC extending their output cuts to the end of 2019, expectations that U.S. production will be able to offset imports is not priced into the markets. In fact, the term structure is saying the current demand is strong which is reflected by the increase in refinery operations. Stronger than expected jobs data released on Friday, show the U.S. economy continues to rebound which should help crude oil prices remain robust.
Crude Term Structure Shows Solid Demand
The term structure of crude oil can be viewed by looking at the spread between current prices and future prices. The chart above shows March 2018 crude oil futures prices minus March 2019 crude oil prices. The different is near the highs of the year and is positive, which means that refiners and storage operators are not getting paid to hold oil in storage and sell it in the future. If you purchase oil for March delivery and hold it for a year, you would actually lose $3.36 plus storage and financing costs.
The backwardation term structure describes strong demand for crude oil which is also reflected in the elevated run rates reported by the Energy Information Administration. The EIA reported this week that refinery runs are up near 94%, which compares to approximately 90% a year ago. Elevated distillate and gasoline crack levels are incenting refiners, which is buoying crude oil demand.
Payroll Data was Strong
Rising growth and strong jobs data is also helping to buoy crude oil prices. On Friday, U.S. nonfarm payrolls increased 228k in November, compared to the 190K expected after climbing 244k in October, which was revised from 261k following a 38K gain September gain which was the results of U.S. hurricanes. The unemployment rate held at 4.1%. The labor force bounced 148k versus -765k in October, with household employment up 57k from -484k. Earnings rose 0.2% from -0.2% which was revised down from unchanged. Hours worked increased to 34.5 from 34.4, which shows further increases in the number of hourly workers.
Canada Housing Starts Were Strong
Canada housing starts surged to a 252.2k unit pace in November, blasting past expectations of 215k following a slightly revised 222.7k in October. The November starts pace was the fastest growth rate since the 253.3k clip in April of 2012. The sizable gain in total starts was driven by the usual suspect, multi-unit starts, which enjoyed a 16.9% run-up to 175.0k units in November. Single detached urban starts rose 7.5% to a 60.4k pace.
This article was originally posted on FX Empire
