Oil Drops Below $42, Markets Eye Key US Numbers

Crude oil prices continue to fall, as a barrel of WTI crude is trading $41.91 in Friday’s European session. In economic news, it’s a busy day, as the US releases three key releases  – Retail Sales, PPI and UoM Consumer Confidence. Unexpected readings from any of these indicators could have a sharp effect on the US dollar.

A worldwide glut of crude oil continues to push prices to lower levels, with daily losses over the past seven days. Oil touched the $50 level in mid-October, but has struggled since then, with the price of a barrel currently under $42, its lowest level since August. Will the current slide break through the symbolic $40 level? With China and other emerging markets gripped by an economic slowdown, the demand for oil has softened. This has led to a worsening “transit glut”. Land storage facilities are at full capacity and some 100 million barrels of crude oil and heavy fuels are being held at sea, leading to tankers full of crude mired in long lines outside of oil hubs around the globe, such as the US, China and Singapore. At the same time, if the Federal Reserve raises rates next month, such a dramatic move would mark a strong vote of confidence in the US economy, and positive market sentiment could translate into actual economic growth which would increase the demand for oil and raise slumping oil prices.

The recent Fed policy statement hinted at a December rate hike, and this has understandably fueled market speculation about a rate hike in December. At the same time, the Fed has been split over a rate hike for quite some time, and many members will be hesitant to vote in favor of raising rates unless they are confident that the US economy can withstand an interest rate hike. Employment numbers out of the US have certainly improved, with recent indicators such as the unemployment rate pointing to close to full employment in the US economy. Key US releases on Friday, led by Retail Sales, will be closely watched by the markets and the Fed, and the strength of these readings will play a significant role in the Fed’s decision-making process ahead of the critical December monetary policy meeting.

WTI/USD Fundamentals

Friday (Nov. 13)

• 13:30 US Core Retail Sales. Estimate 0.4%
• 13:30 US PPI. Estimate 0.2%
• 13:30 US Retail Sales. Estimate 0.3%
• 13:30 US Core CPI. Estimate 0.1%
• 15:00 US Preliminary UoM Consumer Sentiment. Estimate 91.3 points
• 15:00 US Business Inventories. Estimate 0.1%
• 15:00 US Preliminary UoM Inflation Expectations
• 15:30 US Natural Gas Storage. Estimate 51B

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Friday, November 13, 2015

WTI/USD November 13 at 11:30 GMT

WTI/USD 41.91 H: 41.99 L: 41.40

XAU/USD Technical

• WTI/USD has shown marginal movement in the Asian and European sessions.
• 39.87 is providing support.
• 42.59 is a weak line of resistance.

Further levels in both directions:

• Below: 39.87 and 37.75 and 35.09
• Above: 42.59, 44.30, 47.04 and 49.06

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