Oil prices consolidated on Monday as diverging forces kept black gold within a relatively tight range. Conflicting fundamentals are keep prices buoyed, as current inventories within the United States are now at 80 year highs. While demand is strong and U.S. production is declining, there seems to be a plethora of producers globally who are willing to fill the void. Last week China released its trade numbers which showed a 17% drop in imports. Hidden within those numbers was the Chinese oil import numbers which shows that the world’s second largest economy is stock piling cheap oil. China’s crude imports increased in September rising to nearly 28 million metric tons compared to 26.59 metric tons in August. The report issue by the Chinese Customs Department showed a nearly 9% increase month over month to an equivalent of 6.8 million barrels a day.
Imports into China during the first 9-months of the year increased by 8.8% year over year to nearly 250 million tons. At the same time, Chinese refineries in September increased processing rates to a 3-month highs. This allowed additional storage space which assisted in the process of further stockpiling. The latest estimate of inventories in the United States show that stocks of crude oil are at 80-year highs. Production on the other hand continues to slide in the United States. Not only did the EIA report a drop in production, but Baker Hughes (N:BHI) confirmed the drop with a reduction in rig count during the latest week. According to Baker Hughes, the oil rig count dropped by 10 to 595, the lowest seen since July of 2010. The company also reported that the combination of natural gas and oil rigs dropped to the lowest level since May 2002. This comes as demand remains solid. According to the EIA, total products demand over the past month increased by 1.2%. Gasoline demand over the past month was 9.1 million barrels per day, up by 3.4% year over year. Distillate fuel product, which includes products such as heating oil and diesel increased to 4.0 million barrels per day up by 5.4% year over year and jet fuel demand increased 5.5% year over year.
The current overhand of crude oil supplies is generating a large headwinds for prices that appear to want to move higher. The question that remains for traders is whether the drop in production in the United States will be offset by imports. With demand on the rise, the winter season will also play a large role. Cold weather will drive heating oil demand around the globe, and specifically on the east coast of the United States.
The technical outlook shows that crude oil prices are consolidating, and the tight range makes it difficult to trade. Prices continue to bounce off of support near the 20-day moving average at 46.42. Resistance is seen near the October highs at 50.96. Momentum is flat with the MACD printing near the zero index level. Traders will likely need to wait for a break above resistance or below support to trigger a new move in prices.
