What led to the Speculative Buy?The crude prices rose over the speculation of a slight fall in inventory coupled with the positive tweets from the United States President Donald Trump, hinting that phase 1 of the trade negotiation went well. The crude oil stockpiles in the United States excluding the Strategic Petroleum Reserve (or SPR) stood at 433.2 million barrels for the week ended 18 October 2019, down by 1.7 million barrels against the previous week inventory level of 434.9 million barrels. The Strategic Petroleum Reserve inventory also witnessed a decline to stand at 642.4 million barrels for the week ended 18 October 2019, down by 0.9 million barrels against the previous week level of 643.3 million barrels. The decline in the inventory coupled with positive ongoing negotiations in the U.S-China trade tussle raised a speculative buy, which in turn, supported the crude oil prices.
How Is Crude Oil Currently Behaving?Crude oil prices again returned to the normative movement after crude figures unfolded in the international market, and the market participants further anticipated an increase of 0.5 million barrels in the existing crude oil inventory (excluding SPR) in the United States, which in turn is now exerting pressure on the crude oil prices. Apart from an increase in inventory, the market is also discounting the crude oil prices over the gloomy economic conditions around the globe, which has not shown any prominent recovery. As per the data, the Advance GDP q/q for the United States stood at 1.6 per cent against the previous quarter level of 2.0 per cent. The initial indication of the deteriorating economic conditions coupled with the expectation of an inventory build-up in the present week exerted pressure on the crude oil prices. The market anticipates the U.S. domestic inventory to replenish amid a slight decline in the refinery inputs and high domestic production of crude oil in the United States.
U.S. Crude TradeThe domestic crude oil production in the United States remained steady against the previous reported period to stand at 12.6 million barrels a day for the week ended 18 October 2019, which in turn, marked the third consecutive week of high domestic production in the United States. While the domestic production remained high, the refinery inputs slid slightly by 15,744 thousand barrels a day for the week ended 18 October 2019. Down by over 1 per cent against the previous week level of 15,906 thousand barrels a day. Apart from the fall in refinery inputs the drop in the refinery capacity utilisation rate by 1.1 per cent to stand at 85.1 per cent for the week ended 18 October 2019 against the previous week utilisation rate of 86.2 per cent. The drop in the refinery capacity led towards a high export and lower import, which in turn, suggested lower than anticipated demand of oil in the United States and exerted pressure on crude oil prices. The crude oil exports from the United States stood at 3,863 thousand barrels a day, up by over 13.39 per cent (for the week ended 18 October 2019). The higher export coupled with lower net imports and fall in the refinery utilisation suggested lower demand for oil. The higher exports from the United States was further followed by the lower imports, which in turn, suggested that the demand for oil in the United States remained narrow, exerting pressure on the crude oil prices. The net imports from the United States stood at 2,174 thousand barrels a day for the week ended 18 October 2019, down by 873 thousand barrels a day against the previous week. The total imports in the United States averaged at 5.8 million barrels a day for the week ended 18 October 2019 as compared to the total average import of 6.2 million barrels a day a week prior. In a nutshell, the crude oil prices witnessed a speculative jump in the international market; however, the fundamentals of oil along with the weaker economic data is now unfolding and exerting pressure on the oil prices in the global market.
What to Expect Ahead?LCO Daily Chart (Source: Thomson Reuters) On following the daily chart, we can observe that the oil prices are currently trading below the 200-day exponential moving average; however, the prices are still hovering above the 50-day exponential moving average, which could act an immediate support for the crude oil prices. The 21-day EMA, which is at USD 60.85, is in sync with the 14-day Relative Strength Index, which is at 54.24 and above the mean value. The immediate support of USD 60.85 and the RSI value of 54.24 (slightly above the mean) could instigate buyers’ interest if the fundamentals slightly improve in the global market. LCO Daily Chart (Ichimoku Study) (Source: Thomson Reuters) After applying the Ichimoku study, we can notice, that the oil prices are currently trading above the Span A (mean of the conversion and the base line), and the Span A could provide support to the crude oil prices. The spread between Span A and Span B (mean of 52 days high and low) is widening, which suggests the downtrend is currently strong; however, the conversion line (dark blue), which is the mean of 9 days high and low is trying to cross the base line (mean of 26 days high and lows) from below, and if that happens, crude could see a short-term recovery. If the crossover takes place, it could support the prices; however, the strength of the crossover would be considered as weak as the crossover is taking place below Span A. On the upward side, the 200-day exponential moving average would serve as a primary resistance for the crude oil prices.
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