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Crude Softens as Warm Weather Blankets U.S.
Crude oil prices moved below support levels on Friday and it appears poised to test the 2008 lows near 32.40. While crude oil inventories declined more than expected on Wednesday when the EIA released its inventory report, heating oil inventories climb and more than made up for the reduction in crude oil stocks.
The weather has been warmer than normal in the northeast, which is the largest heating demand areas for heating oil in the United States. NOAA’s most recent weather forecast continues to expect temperatures to remain above normal for the next 8-14 days. This scenario will eventually erode heating oil crack margins, and prevent crude oil stock piles from unwinding. Heating inventories rose more than 5 million barrels on Wednesday and stocks are now in the upper end of the average rate.
Overall demand continues to remain stable year over year, but the warmer weather is eroding distillate fuel demand. Total products demand over the last four-week period averaged about 19.8 million barrels per day, down by 0.6% from the same period last year. Over the last four weeks, gasoline demand averaged about 9.2 million barrels per day, up by 0.7% from the same period last year. Distillate fuel demand averaged 3.7 million barrels per day over the last four weeks, down by 1.2% from the same period last year. One silver lining was that jet fuel demand is up 5.5% compared to the same four-week period last year.
Crude oil prices broke below 36.50. Momentum remains negative with the MACD (moving average convergence divergence) index printing in the red with a downward sloping trajectory. The only caveat is that the RSI (relative strength index) is printing a reading of 28, which his below the oversold trigger level of 30 and could foreshadow a correction.
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