Crude oil Daily Updates

18 October 2017

Crude oil is up again this morning, and has been strengthening for most of the week. As we wrote yesterday, Iraqi forces captured Kirkuk, its airport, military base and surrounding oil fields in an operation yesterday. An escalation of the military conflict would threaten Kirkuk-area oil supply, which is currently producing 500,000 barrels per day. For now, the Kirkuk oil fields continue to operate normally. Data from the American Petroleum Institute also helped prices, as crude inventories continue to fall. While gasoline stocks were much higher than estimated, falling crude inventories help support the ongoing narrative of falling supply driving higher prices. 

WTI remains above $50, and is currently trading just above $51.90. Brent crude is currently above $58.20. After entering overbought conditions two weeks ago, crude oil is now trading within a normal range. 

Looking at US crude oil stocks, last week EIA figures showed falling crude oil stocks and rising gasoline inventories. While crude oil inventories fell slightly more than expected (2.7m vs. 2.4m barrels expected), gasoline stocks surged (2.5m vs. 0 expected). US crude inventories have been falling as a significant portion of Gulf Coast refiners remain offline thanks to Hurricane Harvey. Looking at reactions in markets, crude oil prices fell following the EIA report, which also showed growing US oil exports.  

Updated 
Short term outlook
Bullish

After rising sharply on October 10, we are upgrading crude oil to bullish. Saudi Arabia recently committed to reducing exports in November while significant US offshore production remains offline. We earlier warned that crude oil looked overbought in the last week of September, based on various technical indicators when looking at a daily chart. Since then, the commodity has returned to normal trading conditions. 

Medium term outlook
Bullish

After a strong performance in the second week of October, we are now bullish on crude oil in the medium-term. Crude stocks continue to fall around the world, helping the 'rebalancing' narrative. Furthermore, the recent the seizure of Kurdish oil assets near Kirkuk and Trump's refusal to certify the Iran deal are increasing expectations of lower future supply. Looking at various technical indicators on the weekly chart, crude oil is looking neither overbought nor oversold, but remains within normal trading conditions. 

Updated