WTI/USD – Oil Slides, Markets Eye Yellen Speech

US crude has posted sharp losses on Monday. In the North American session, WTI/USD futures are trading at $47.70 per barrel. Brent crude is trading just shy of the $50 level, at $49.41. Currently, the Brent premium stands at $1.71. In economic news, there are no US releases on the schedule. On Tuesday, we’ll get a look at New Home Sales, a key indicator.

Crude prices have taken a step backwards on Monday after an impressive rally. Crude prices had jumped some 15 percent since August 11. Last week, Crude Oil Inventories posted a sharp decline of 2.5 million, compared to a forecast of a 0.3 million gain. It marked the sharpest decline in crude stockpiles in 5 weeks. However, the market’s mood has changed, as US rig production continues to rise and major producers continue to produce oil at record levels.

Late in the week, central bank heads and other senior financial officials will meet for the annual tête-à-tête in Jackson Hole, Wyoming. The markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing a rate hike. FOMC members are expected to express their views ahead of the key meeting. Fed Vice Chairman Stanley Fischer took the opportunity and sounded upbeat about the US economy, saying that the Fed was close to its aims of a full labor market and the inflation target of 2 percent. The latter claim sounds a bit optimistic, as US inflation levels have consistently been closer to zero than the 2 percent level. It will be interesting to see if Janet Yellen follows suit and expresses satisfaction with current inflation levels.

Any market players who were hoping for some clarity from last week’s Federal Reserves minutes were likely none the wiser after combing through the minutes. The release, which provided the details of the July policy meeting, indicated that FOMC members are deeply divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. The great rate debate needs to be resolved one way or another, as the Fed must set rates at its policy meeting next month. Policymakers will be fine-combing through upcoming economic releases, particularly employment and inflation numbers. The news remains bleak on the inflation front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. As of now, a September hike is virtually off the table, while the odds of a December hike are about 40%.

WTI/USD Fundamentals

Monday (August 22)

• There are no US releases on the schedule

Tuesday (August 23)

• 10:00 US New Home Sales. Estimate 575K

*Key events are in bold

*All release times are EDT

WTI/USD for Monday, August 22, 2016

WTI/USD August 22 at 13:20 EDT

Open: 48.82 High: 48.85 Low: 47.55 Close: 47.72

WTI USD Technical

• WTI/USD has been on a steady downward trend throughout the Monday session
• 46.69 is providing support
• There is resistance at 50.13. This line has held firm since June 23

Further levels in both directions:

• Below: 46.69, 43.45 and 39.32
• Above: 50.13, 53.50 and 56.50

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