Crude Oil Forms Doji Day but Iran Sanctions Loom

Demand for crude oil remains solid, but few are expecting further supply disruptions especially from sanctions on Iran.  While French President Emmanuel Macron has proposed a new deal to offer Trump, the markets will need to wait to see if the President will extend the sanction waivers.

Technicals

Crude oil prices were nearly unchanged on Thursday, opening where it closed which is a doji day which reflects indecision.  Prices tested higher level but were unable to gain traction. Support is seen near the 10-day moving average at 67.77. The next level of target support would be the former breakout level at 66.66. Positive momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the black with a declining trajectory which reflects consolidation.

French President Emmanuel Macron, is attempting to sway President Trump and it is clear from Trumps comments that he sees Macron as a friend. Macron has proposed a new deal to offer Trump, but if the U.S. president shuns it, it will be time of more tension and uncertainly, Macron said, as quoted by Bloomberg. Trump is due to announce his decision on whether he will extend the sanction waivers for Iran on May 12.

Some analysts, meanwhile, believe that the market is underestimating the effect of new sanctions on oil prices. An additional 250K to 300K barrels a day could come off the markets, and will solid demand refiners would quickly eat into inventories. With Saudi Arabia not exporting oil to the U.S. in May, prices could see considerable upside.

Refinery Utilization Slipped

The EIA reported that U.S. crude oil refinery inputs averaged over 16.6 million barrels per day during the week ending April 20, 2018, 328,000 barrels per day less than the previous week’s average. Refineries operated at 90.8% of their operable capacity last week. Distillate fuel production decreased last week, averaging 5.0 million barrels per day.

Imports Rose

Imports rose according to the DEO inventory report. U.S. crude oil imports averaged about 8.5 million barrels per day last week, up by 539,000 barrels per day from the previous week. During the last month crude oil imports averaged over 8.2 million barrels per day, 1.5% more than the same four-week period last year. Gasoline imports last week averaged 896,000 barrels per day. Distillate fuel imports averaged 123,000 barrels per day last week.

Inventories Increased

The EIA revealed that U.S. commercial crude oil inventories unexpectedly increased by 2.2 million barrels from the previous week. Expectations were for a small 1-million-barrel draw. Gasoline inventories increased by 0.8 million barrels last week, which was in line with expectations. Distillate fuel inventories decreased by 2.6 million barrels last week and compared to the small build expected. Total commercial petroleum inventories increased by 1.4 million barrels last week.

Demand is Strong

Demand remains strong according to the EIA report. Total product demand over the last month averaged about 20.4 million barrels per day, up by 4.3% year over year. Over the last months, gasoline demand averaged about 9.4 million barrels per day, up by 1.3% from the same period last year. Distillate fuel demand averaged over 4.0 million barrels per day over the last month, down by 2.5% from the same period last year.