Crude Drops Sharply, Key US Manufacturing PMI Slides

WTI Crude has posted sharp losses on Monday, as crude futures trade at $36.72 per barrel in the North American session. In economic news, today’s key event was ISM Manufacturing PMI. The index was a big disappointment, dropping to 48.2 points, which was well below expectations.

Crude has greeted the New Year by sliding over 3 percent. The sharp drop was in response to a new crisis in the Middle East between Iran and Saudi Arabia, two major oil producers. Saudi Arabia abruptly cut off relations with Iran on Monday, following the execution of a Saudi cleric which led to the ransacking of the Saudi embassy in Tehran. If the situation deteriorates, oil shipments from Saudi Arabia could be threatened, and market jitters have resulted in some volatility in the price of crude oil.

The US economy improved in 2015, but there are sectors which have lagged behind the recovery, such as the manufacturing sector. Recent manufacturing releases have missed expectations, and the negative trend continued on Monday. ISM Manufacturing PMI slipped to 48.2 points, well short of the forecast of 49.1 points. This weak reading is raising concerns, since it marks back-to back releases below the 50-point level, which separates expansion from contraction. It is also the sixth consecutive month that the PMI has softened. As well, ISM Manufacturing Prices dipped to 33.5 points, well below expectations.

WTI/USD Fundamentals

Monday (Jan. 4)

• 14:45 US Final Manufacturing PMI. Estimate 51.1 points. Actual 51.2 points
• 15:00 US ISM Manufacturing PMI. Estimate 49.1 points. Actual 48.2 points
• 15:00 US Construction Spending. Estimate 0.7%. Actual -0.4%
• 15:00 US ISM Manufacturing Prices. Estimate 36.5 points. Actual 33.5 points

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Monday, January 4, 2016

WTI/USD January 4 at 16:10 GMT

WTI/USD  36.72 H: 38.36 L: 36.63

WTI/USD Technical

• There is resistance at 37.75
• 35.09 continues to provide support

Further levels in both directions:

• Below: 35.09, 32.22 and 30.00
• Above: 37.75, 39.87, 42.59 and 44.01

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