WTI/USD – Crude Gains Continue Despite Large Surplus in Stockpiles

US crude prices are higher on Wednesday, following strong gains in the Tuesday session. In North American trade, WTI/USD futures are trading at $46.27. Brent crude futures are trading at $47.33, as the Brent premium stands at $1.06. On the release front, PPI came in at a flat 0.0%, short of the forecast of 0.3%. On Thursday, the markets will have plenty of data to digest. There are a host of major US events, led by CPI. As well, Fed chair Janet Yellen will testify before the Congressional Joint Economic Committee.

US Crude Inventories continue to post sharp surpluses, confounding market predictions which continue to underestimate the indicator. Last week, stockpiles jumped 5.3 million, crushing the estimate of 0.4 million. Still, US crude has held its own against the dollar on Wednesday. Meanwhile, OPEC members are trying to drum up support for a cap agreement to stabilize oil prices. Although there is skepticism that the cartel will reach an agreement, Qatar, Algeria and Venezuela are working behind the scenes to reach a consensus. OPEC members will meet in Vienna in November 30. If the cartel fails to reach an agreement, analysts predict that oil prices could fall as low as $35 a barrel. On Friday, OPEC said its output hit a record 33.64 million barrels per day in October.

As the shock subsides from last week’s stunning election upset, what can we expect from President Trump? The markets went on a roller-coaster ride after the election, but appear to have settled down. Market sentiment is currently very favorable towards the dollar, as a Trump presidency (together with a Republican-controlled Congress) could signal a looser fiscal policy and a cut in taxes. This would likely result in greater inflation, which would lead to higher interest rates and hence a stronger dollar. At the same time, Trump is a political enigma, and aside from being “pro-business” he has been very short on specifics with regard to an economic platform. This lack of certainty means the markets could be in for plenty of surprises which could translate into volatility in the currency markets.

With the Federal Reserve meeting for a policy next month, expectations are sky-high that the Fed will press the trigger and raise rates by a quarter-point for the first time in a year. There have been several false starts before, but this time should be different. The Fed has sent out strong signals that it will raise rates, and in the past two rate decisions, some FOMC members voted for an immediate rate hike. The odds of a rate rise currently stand at a remarkable 90 percent, so barring some sharp negative data out of the US, we’ll see a rate hike before the end of 2016.

Fed Hike Odds Near 100%

WTI/USD Fundamentals

Wednesday (November 16)

• 3:05 US FOMC Member James Bullard Speech
• 8:30 US PPI. Estimate 0.3%. Actual 0.0%
• 8:30 US Core PPI. Estimate 0.2%. Actual -0.2%
• 9:15 US Capacity Utilization Rate. Estimate 75.5%. Actual 75.3%
• 9:15 US Industrial Production. Estimate 0.2%. Actual 0.0%
• 10:00 US NAHB Housing Market Index. Estimate 63 points. Actual 63 points
• 10:30 US Crude Oil Inventories. Estimate 0.4M. Actual 5.3M
• 16:00 US TIC Long-Term Purchases. Estimate 32.9B

Thursday (November 17)

• 8:30 US Building Permits. Estimate 1.19M
• 8:30 US CPI. Estimate 0.4%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Philly Fed Manufacturing Index. Estimate 8.1 points
• 8:30 US Unemployment Claims. Estimate 257K
• 10:00 US Fed Chair Janet Yellen Testifies

*All release times are EST

*Key events are in bold

WTI/USD for Wednesday, November 16, 2016

WTI/USD November 16 at 11:05 EST

Open: 45.74 High: 46.12 Low: 45.04 Close: 46.27

WTI USD Technical

• WTI/USD showed limited movement in the Asian session. The pair lost ground in European trade but has changed directions and posted gains in North American trade
• 40.57 is providing support
• 46.54 is under pressure in resistance and could break in the North American session

Further levels in both directions:

• Below: 40.57, 33.22 and 28.71
• Above: 46.54, 52.22 and 58.32

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