WTI/USD – US Crude Slides as Crude Inventories Increase

US crude has posted sharp losses on Wednesday. In the North American session, WTI/USD futures are trading at $42.05. Brent crude has dropped to $44.18, as the Brent premium stands at $2.13. On the release front, Crude Oil Inventories was unexpectedly strong, posting a surplus of 1.1 million barrels. JOLTS Jobs Openings improved to 5.62 million, easily beating expectations. Thursday’s key event is Unemployment Claims.

Crude Oil Inventories, often a market-mover of US crude, showed a surplus of 1.1 million last week, surprising the markets, which had anticipated a decline of 1.3 million. The reading has pulled US crude down 2.2% in the North American session, and the commodity is on the verge of breaking below the $42 level. Crude Inventories has posted surpluses for three consecutive weeks, each time confounding the markets, which had predicted that crude stockpiles would decline.

Crude prices rose to 2-week highs on Tuesday, courtesy of OPEC. The oil cartel, which has been hit hard by low oil prices, has again floated the idea of a freeze in output in order to stabilize oil prices. Venezuala, Ecuador and Kuwait are pushing the idea, but Russia is so far non-committal to implementing a freeze. OPEC members will meet in late September in Algiers. If recent history is any indication, an agreement will be difficult to reach. OPEC members attempted to freeze output earlier in the year, but could not reach an agreement as Iran refused to climb on board. The meeting resulted in significant volatility in oil prices, and the trend could repeat itself at the September summit.

US employment numbers impressed in July, led by a banner Nonfarm Payrolls report. The July indicator surprised the markets with a huge gain of 255 thousand, crushing the estimate of 180 thousand. This release follows the outstanding June reading of 280 thousand. US wage growth has been a soft spot in the robust labor market, but there was positive news as Average Hourly Earnings gained 0.3%, edging above the forecast of 0.2%. As well, Unemployment Claims remained steady at 4.9%. What will the Federal Reserve do with these numbers? Prior to the payrolls release, a September hike was virtually off the table, especially in light of the soft US GDP report in late July. The Fed has made no secret of the fact that any rate move will be data-dependent, and the stellar job numbers will force to Fed to give serious thought to a move in September. Employment and inflation releases in the next few weeks will be critical factors in determining if the Fed makes a move next month, or waits until December before revisiting the rate question.

WTI/USD Fundamentals

Wednesday (August 10)

• 10:00 US JOLTS Job Openings. Estimate 5.52M. Actual 5.62M
• 10:30 US Crude Oil Inventories. Estimate -1.3M. Actual +1.1M
• 13:01 US 10-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -119.0B

Thursday (August 11)

• 8:30 US Unemployment Claims. Estimate 272K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, August 10, 2016

WTI/USD August 10 at 11:50 EDT

Open: 42.66 High: 43.39 Low: 41.96 Close: 42.11

WTI USD Technical

• WTI/USD was flat in the Asian session. The pair posted gains in the European session and is choppy in North American trade
• 39.32 is providing support
• 43.45 is a weak resistance line. It could break in the North American session

Further levels in both directions:

• Below: 39.32, 35.25 and 30.55
• Above: 43.45, 46.69, 50.13 and 53.50

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