Milan Cacic
July 28, 2023
Social media Economy Commentary Trending Weekly update Weekly commentaryCRUDE AWAKENING?
Last week we talked about crude oil breaking above its 50-day moving average [$72.62] and approaching its 200-day moving average [$77.06]. This week, crude oil broke through $80 and at the time of writing is trading at $80.46. This is the first time since last June that oil traded above its 200-day moving average. From a technical point of view, the chart below is very encouraging for a potential rise in the price of oil.
Crude oil adjustment factor
Each week the Energy Information Administration [EIA] collects oil imports, refining imports, oil exports and production data. The goal of the report each week is to provide how much US inventories went up or down. This data is important to both producers and refineries because it gives them an snapshot of whether there is more supply or demand of crude oil and crude oil products. Because there are so many moving parts to the imports and exports as well as the storage facilities the EIA sometimes applies an adjustment factor to the previous week’s report.
The adjustment factor is normally less than 500,000 barrels per day for the previous week’s report, and over a few weeks the adjustment factor usually adds up to zero. To be more specific, normally the adjustment factor is positive 400,000 barrels per day one week and then -400,000 barrels per day the next. Over the long run, the adjustment factor should equal zero. However, over the past few months the adjustment factor has been moving higher and has consistently overstated inventories. As you can see from the chart below, the adjustment factor is getting larger and consistently positive. Last week the adjustment factor hit 2.4 million barrels per day, which makes it appear that we are consuming less oil than we really are. This is a little concerning because it's possible there is less oil out there than we think, which may be why oil is starting to move up. Time will tell!
I've also included a piece from our CIBC Economics team entitled "Some hard truths about soft landings".
As always, if you have any questions, please feel free to give us a call at any time.
Have a great weekend.
Milan