US Crude Higher as Crude Inventories Miss Forecast

US crude futures have posted small gains on Wednesday, reversing the downward trend of the Tuesday session. Crude is trading at $39.33 per barrel in the North American session. Brent crude futures are trading at $40.19, for a small premium of $0.86. In economic news, ADP Nonfarm Employment Change, which measures payrolls in the private sector, softened to 200 thousand in March, but beat the estimate. This indicator will be followed by the official Nonfarm Payrolls report on Friday, with the estimate standing at a healthy 206 thousand. As well, Crude Oil Inventories posted a surplus of 2.3 million, well below the estimate of 3.1 million.

Janet Yellen surprised the markets with an ultra-dovish speech in New York on Tuesday. Yellen served notice that the Fed would continue its cautious approach towards monetary tightening, given the turbulent global economy and risks due to the Chinese slowdown. Yellen downplayed higher inflation levels, which in January reached 1.7 percent, the highest in almost two years. This reading is not far from the Fed’s target of 2.0 percent and some Fed members have gone on record saying that the Fed should raise rates before inflation pushes above the 2.0 percent threshold. At the same time, Yellen acknowledged that there were encouraging signs in the US economy, including a strong labor market. Her comments dampened recent speculation about an April rate hike, which was precipitated by a flurry of hawkish comments from Fed officials. It will be interesting to see if Yellen’s cautious assessment will be reinforced or challenged by Fed members in the coming days.

The US economy expanded at a respectable growth of 1.4 percent in the fourth quarter, above the estimate of 1.0 percent. However, there are signs that we could see softer numbers for the first quarter of 2016. Earlier this week, the Atlanta Fed downgraded its forecast for Q1 from 1.4 percent to 0.6 percent. The original forecast, released just last week, was lowered in response to a downgraded forecast of personal income and outlays by the US Bureau of Economic Analysis. If US economic activity did in fact weaken in Q1, we could see the US dollar lose ground against its major rivals.

WTI/USD Fundamentals

Wednesday (March 30)

• 8:15 ADP Nonfarm Employment Change. Estimate 195K. Actual 200K
• 10:30 US Crude Oil Inventories. Estimate 3.1M. Actual 2.3M

Upcoming Key Events

Thursday (March 31)

• 8:30 US Unemployment Claims. Estimate 266K

WTI/USD for Wednesday, March 30, 2016

WTI/USD March 30 at 11:20 DST

Open: 38.61 Low: 38.48 High: 39.84 Close: 39.33

WTI/USD Technical

• 37.75 has strengthened in support following gains by WTI/USD
• 40.00 is a weak resistance line and could be tested during the North American session

Further levels in both directions:

• Below: 37.75, 35.09 and 32.22
• Above: 40.00, 43.45, 46.69 and 50.89

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