WTI/USD – US Crude Edges Lower as Crude Inventories Jumps

US crude has recorded small losses on Wednesday, erasing the gains made in the Tuesday session. In North American trade, WTI/USD futures are trading at $53.22. Brent crude futures are trading at $55.22, as the Brent premium stands at $2.00. On the release front, Crude Oil Inventories surprised with a surplus of 2.3 million, crushing the forecast of a deficit of 2.4 million.  Existing Home Sales was unexpectedly strong, climbing to 5.61 million. Thursday will be busy, as the US releases three key events – Core Durable Goods Orders, Final GDP and unemployment claims.

Crude Oil Inventories posted a strong gain of 2.3 million, ending a streak of four consecutive declines, each of which missed expectations. The recent cap agreements signed by OPEC and non-OPEC exporters led to significant volatility in oil prices, but the volatility has since subsided, as the markets adopt a “wait and see” attitude, especially with regard to compliance by oil exporters with the required production cuts. Analysts expect US crude to remain in the $50-54 range for the next several weeks. Higher prices would encourage US shale producers to enter the market, which could offset lower production from OPEC and other oil exporters.

December seems to be that special time of year for the Federal Reserve. When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

WTI/USD Fundamentals

Wednesday (December 21)

• 10:00 US Existing Home Sales. Estimate 5.52M. Actual 5.61M
• 10:30 US Crude Oil Inventories. Estimate -2.4M. Actual +2.3M

Thursday (December 22)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%
• 8:30 US Final GDP. Estimate 3.3%
• 8:30 US Unemployment Claims. Estimate 255K

*All release times are EST

*Key events are in bold

WTI/USD for Wednesday, December 21, 2016

WTI/USD December 21 at 11:20 EST

Open: 53.07 High: 53.73 Low: 52.86 Close: 53.55

WTI USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted small losses in North American trade
• 52.22 remains a weak support line
• 58.32 is the next resistance line

Further levels in both directions:

• Below: 52.22, 46.54, 40.57 and 33.22
• Above: 58.32, 65.05 and 72.99

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