Crude Oil Steady Ahead of Expected Fed Rate Hike

WTI Crude is very quiet on Wednesday, trading at $36.97 per barrel in the European session. In economic news, the Federal Reserve is expected to announce a historic rate hike for the first time since June 2006. The US will also release Building Permits, a key event.

Crude oil investors remain on the sidelines, as the markets wait anxiously for a crucial Fed meeting which could prove to be the economic release of the year. The Fed will conclude a two-day policy meeting later on Wednesday and all indications are that the Fed will raise rates by 0.25%, to be followed by further rate hikes in 2016. The Fed last raised rates back in June 2006, and Fed chief Janet Yellen and other policymakers have sent broad signals to the markets that the US central bank if finally ready to press the rate trigger. The US economy is close to full employment, and Yellen recently stated that she was not concerned about persistently low inflation. How the commodity markets will react to a hike is of course, the million dollar question. Given that the markets have had ample time to price in this event, volatility from crude oil could be limited. At the same time, even a small rate increase represents a huge shift in the Fed’s monetary policy, which could help boost the US dollar.

With the supply of oil far exceeding demand, oil prices have nosedived, with crude futures prices slipping some 32% since the start of the year. US crude inventories posted a surprise decline in the most recent reading, but this failed to put in a dent in the downward decline of crude. Oil storage facilities on land are so full that dozens of tankers remain at sea, laden with oil and unable to discharge their cargo. The recent OPEC meeting, in which members couldn’t agree on any cuts and failed to even issue a production target, has only made matters worse. With Russia continuing to produce at high levels and Iran waiting in the wings to export its oil, prices could continue to head south as we head into 2016, with some analysts predicting prices below $30 a barrel. Meanwhile, the well-respected Moody’s rate agency sharply lowered its oil price assumptions on Tuesday, reflecting the huge disparity between supply of and demand for oil.

US consumer inflation numbers were weak on Tuesday. Core CPI, which is carefully monitored by the Federal Reserve, remained at 0.2% for a third straight month. CPI dipped to 0.0%, down from 0.2% in November. Both indicators matched their forecasts, so these readings are unlikely to make any waves in the markets. More importantly, these numbers, although pointing to a weak inflation picture in the US, are unlikely to deter the Fed from a widely expected rate hike later on Wednesday.

WTI/USD Fundamentals

Wednesday (Dec. 16)

• 13:30 US Building Permits. Estimate 1.16M
• 19:00 US FOMC Economic Projections
• 19:00 US FOMC Statement
• 19:00 US Federal Funds Rate. Estimate <0.50%
• 19:30 US FOMC Press Conference

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Wednesday, December 16, 2015

WTI/USD December 16 at 9:55 GMT

WTI/USD  36.95 H: 37.35 L: 36.61

WTI/USD Technical

• Crude continues to show limited movement in the Asian and European sessions.
• 37.75 is a weak resistance line
• 35.09 continues to provide support

Further levels in both directions:

• Below: 35.09, 33.22 and 30.00
• Above: 37.75, 39.87, 42.59, and 44.30

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