WTI/USD – US Crude Jumps as Crude Supplies Dwindle

After an uneventful day, US crude prices have jumped in Thursday’s North American session. WTI/USD futures are currently trading at $47.02 per barrel. Brent futures are trading at $48.56, as the Brent premium is at $2.54, little changed from Wednesday. The sharp climb was in response to a stunning Crude Oil Inventories report. The indicator plunged, posting a decline of 14.5 million barrels. On the employment front, unemployment claims dropped to 259 thousand, beating the estimate of 264 thousand. This reading marked the lowest level of jobless claims in seven weeks.

Crude Oil Inventories shocked the markets on Thursday, posting a staggering decline of 14.5 million which has sent crude prices sharply higher. The markets had predicted a small gain of 0.6 million. Many analysts have been projecting that the huge oil glut will disappear by the end of 2016, and if this decline is not a one-time blip and inventories continue to drop, we could see oil prices head upwards. On Monday, crude prices jumped 5.3 percent before retracting. The sharp rise followed the surprise announcement that Russia and Saudi Arabia planned to cooperate to stabilize oil markets, as oil prices continue to show strong fluctuations. The two countries signed a “cooperation accord” on Monday at the G-20 summit in China. However, oil prices have since retreated, as the cooperation agreement failed to provide any specifics over how to reduce the supply glut. Next up is a meeting of OPEC and non-OPEC members in Algiers on September 26, and the Russian and Saudi Arabian oil ministers will meet in Algeria in October and discuss further steps. Oil producers met earlier in 2016 but failed to reach a production ceiling, as Iran refused to agree to any curbs in production. It’s doubtful that the Algiers meeting will be more successful, but oil prices tend to show strong movement around these meetings, and this will likely be the case once again.

At a meeting of central bankers back last month, Fed chair Janet Yellen said that the case in favor of a rate hike had improved, given stronger US data. Ever since that speech, the markets have been fixated on the possibility of a rate hike prior to the end of 2016. However, a spate of weak US numbers in the past week has lowered the likelihood of a move by the Fed. The CME FedWatch Tool is showing a substantial drop in the odds of a rate hike for both September and December – the likelihood of a September rise has dropped to 15%, while the odds of a December hike are down to 39%. Even though the US labor market remains close to full capacity, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, exactly a year from the last rate hike.

WTI/USD Fundamentals

Thursday (September 8)

• 8:30 US Unemployment Claims. Estimate 264K. Actual 259K
• 10:30 US Natural Gas Storage. Estimate 44B. Actual 36B
• 11:00 US Crude Oil Inventories. Estimate +0.6M. Actual -14.5M
• 15:00 US Consumer Credit. Estimate 15.7B

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, September 8, 2016

WTI/USD September 8 at 11:20 EDT

Open: 46.17 High: 47.17 Low: 45.78 Close: 47.02

WTI USD Technical

• WTI/USD showed limited movement in the Asian and European session. The pair has posted strong gains in North American trade.
• 46.49 has switched to support following strong gains by WTI/USD in the North American session
• There is resistance at 50.13

Further levels in both directions:

• Below: 46.69, 43.45, 39.32 and 37.75
• Above: 50.13, 53.50 and 59.69

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