WTI/USD – US Crude Unchanged, Fed Decision Looms

US crude posted slight gains on Tuesday but then retracted. In the North American session, WTI/USD futures are trading at $52.80. Brent crude futures are trading at $55.56, as the Brent premium stands at $2.76. On the release front, there are no major events on the schedule. On Wednesday, the Fed concludes its monthly policy meeting and the US will release key retail sales numbers. This will be followed by Crude Oil Inventories, which has recorded three straight declines.

OPEC members are moving quickly after surprising the markets in reaching a production agreement earlier this month. On Tuesday, Abu Dhabi, Kuwait and Qatar announced production cuts, and other oil exporters are likely to follow suit. The OPEC agreement was followed by another production deal on Wednesday, involving OPEC and 12 other oil exporters, led by Russia. The cuts are slated to begin on January 1, 2017. The agreement between OPEC and non-OPEC oil exporters was the first since 2001, and could propel crude prices even higher. However, even with these agreements, it’s unlikely that oil prices will go through the roof. Oil exporters will target a price of about $60, since prices above that level would encourage US shale producers to enter the market, which would increase crude supply and lower prices. It’s also uncertain if oil exporters will abide by their commitments, as breaches of production quotas has been a persistent problem in the past. If the markets “smell a rat” and believe that compliance is lacking, crude prices could quickly head lower.

Spike in Crude Push U.S Yields Through Key Levels

Oil Surges as Non-Opec Strike Output Deal

Oil Higher on OPEC and Other Major Producers Agreement

All eyes are on the Federal Reserve, which meets for a crucial policy meeting on Wednesday. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback.  Even though the rate hike has been expected (and priced in) for some time, such a momentous move could boost the greenback following a rate hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this could change, given Trump’s declarations to increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

WTI/USD Fundamentals

Tuesday (December 13)

• 13:01 US 10-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -99.5B

*All release times are EST

*Key events are in bold

WTI/USD for Tuesday, December 13, 2016

WTI/USD December 13 at 11:40 EST

Open: 53.72 High: 53.40 Low: 52.53 Close: 52.80

WTI USD Technical

• WTI/USD showed limited movement in the Asian and European sessions. The pair has posted gains in the European session but has retracted in North American trade
• 52.22 is a weak support line
• 58.32 is the next resistance line

Further levels in both directions:

• Below: 52.22, 46.54, 40.57 and 33.22
• Above: 58.32, 65.05 and 72.99

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