US Crude Drops after Hawkish Fed Minutes

US crude has lost ground on Thursday, continuing the downward trend seen on Wednesday. Crude is trading at $46.98 per barrel in the North American session. Brent crude is trading at $47.52, as the Brent premium has narrowed to $0.54. In economic news, the Philly Fed Manufacturing Index dropped 1.8 points, disappointing the markets. Unemployment Claims dropped sharply to 278 thousand, within expectations. We’ll also hear from two Federal Reserve presidents, Stanley Fischer and William Dudley.

Crude Oil Inventories surprised the markets on Wednesday, posting a gain of 1.3 million. The markets had expected a sharp decline of 3.2 million. US crude initially shrugged off the release, but the commodity has since dipped to $47. Crude Oil Inventories, released weekly, have posted declines only twice since February, as US crude stockpiles remain at high levels. Oil prices have nonetheless remained high, in large part a result of production problems such as the massive wildfire in Alberta earlier this month.

The Federal Reserve minutes were released on Wednesday, sending the US dollar broadly higher and oil prices lower. The minutes were surprisingly hawkish, indicating that a June rate hike remains firmly on the table. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish, as recent statements from Fed chair Janet Yellen were more cautious in nature, dampening speculation about a June hike. The markets were skeptical that June would be a “live meeting”, but there are no more doubters that the June meeting will be crucial, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, key economic indicators will be under the market microscope, especially inflation and employment releases.

WTI/USD Fundamentals

Thursday (May 19)

• 8:30 US Philly Fed Manufacturing Index. Estimate 3.2. Actual -1.8
• 8:30 US Unemployment Claims. Estimate 276K. Actual 278K
• 9:15 US FOMC Member Stanley Fischer Speaks
• 10:00 US CB Leading Index. Estimate 0.4%. Actual 0.6%
• 10:30 US Natural Gas Storage. Estimate 75B. Actual 73B
• 10:30 US FOMC Member William Dudley Speaks

Upcoming Key Events

Friday (May 20)

• 10:00 US Existing Home Sales. Estimate 5.40M

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, May 19, 2016

WTI/USD May 19 at 11:10 EDT

Open: 48.04 Low: 46.75 High: 48.04 Close: 46.98

WTI/USD Technical

• WTI/USD was flat in the Asian session. The pair posted losses in the European session and remains under pressure in North American trade
• There is resistance at 50.13
• 46.69 is under strong pressure in support as crude continues to lose ground

Further levels in both directions:

• Below: 46.69, 43.45, 40.00 and 37.75
• Above: 50.13, 53.50 and 56.79

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