WTI/USD – US Crude Moves Higher as GDP Sparkles

US crude futures have posted strong gains in North American trade, trading at $53.09. Brent crude futures are trading at $55.06, as the Brent premium stands at $1.97. On the release front, US Final GDP posted a gain of 3.5%, above the forecast of 3.3%. Durable goods reports were a mixed bag. Core Durable Goods Orders gained 0.5%, above the forecast of 0.2%. Durable Goods Orders posted a sharp decline of 4.6%, but this was better than the forecast of -4.9%. On the employment front, unemployment claims jumped to 275 thousand, much weaker than the forecast of 255 thousand. On Friday, the US publishes New Home Sales and UoM Consumer Sentiment.

The US economy continues to expand at a brisk clip, as underscored by the most recent revision to third quarter GDP. The Final GDP reading of 3.5% beat the estimate of 3.3%. This figure marked an upward revision of the previous GDP estimate of 3.2%. The stellar reading can be attributed to stronger consumer spending and an increase in business investment, and marked the strongest growth rate since the third quarter of 2015.

On Wednesday, 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.

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 Fed finally pressing the rate trigger last week, what can we expect from Janet Yellen & Co.? In September, Fed officials predicted 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. The upcoming Trump presidency is likely to shake things up in Washington, but Trump’s economic stance remains unclear. 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

Thursday (December 22)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%. Actual 0.5%
• 8:30 US Final GDP. Estimate 3.3%. Actual 3.5%
• 8:30 US Unemployment Claims. Estimate 255K. Actual 275K
• 8:30 US Durable Goods Orders. Estimate -4.9%. Actual -4.6%
• 8:30 US Final GDP Price Index. Estimate 1.4%. Actual 1.4%
• 9:00 US HPI. Estimate 0.4%. Actual 0.4%
• 10:00 US Core PCE Price Index. Estimate 0.1%. Actual
• 10:00 US Personal Spending. Estimate 0.4%. Actual
• 10:00 US CB Leading Index. Estimate 0.2%. Actual
• 10:00 US Personal Income. Estimate 0.3%. Actual 
• 10:30 US Natural Gas Storage. Estimate -201B

Friday (December 23)

• 10:00 US New Home Sales. Estimate 575K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.2

*All release times are EST

*Key events are in bold

WTI/USD for Thursday, December 22, 2016

WTI/USD December 22 at 10:10 EST

Open: 52.58 High: 53.15 Low: 52.09 Close: 53.09

WTI USD Technical

• WTI/USD was flat in the Asian session and posted slight losses in the European trade. The pair has rebounded and posted gains in the North American session
• 52.22 was tested earlier in support and remains a weak 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

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.