WTI/USD – US Crude Shrugs off Sharp Stockpiles Decline, Fed Statement Looms

US crude is showing little movement on Wednesday. In the North American session, WTI/USD futures are trading at $52.50. Brent crude futures are trading at $55.38, as the Brent premium stands at $2.88. On the release front, core retail sales and retail sales posted weak gains of 0.2% and 0.1% respectively, which fell short of estimates. There was better news on the inflation front, as PPI surprised with a gain of 0.4%, marking a five-month high. Today’s highlight is the Federal Reserve rate statement, which will be released later on Wednesday. Thursday will also be busy, as the US releases CPI, the Philly Fed Manufacturing Index and unemployment claims.

With OPEC and other oil exporters reaching a deal on production cuts, the focus will now shift to the tricky issue of compliance. Will signatories honor their commitments? On Wednesday, OPEC warned that the oil surplus could actually grow in 2017 if producers don’t abide by the agreement and curb their output. OPEC production in November was the highest since at least 2008, as members have ratcheted up production in order to grab a bigger piece of the oil market pie. If the markets “smell a rat” and believe that compliance is lacking, crude prices could quickly head lower. However, even if the agreements are kept to the letter, 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 global oil supplies and lower prices.

OPEC Signals Larger Oil Surplus, Unless Cuts Implemented

It’s crunch time, as the markets anxiously await the Federal Reserve’s rate statement later 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 move has been expected (and priced in) for some time, the markets will be monitoring the statement closely – the currency markets could react based on whether the markets view the Fed’s move as a dovish hike or hawkish 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 monetary outlook could change, given Trump’s declarations that he will 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.

Will the Fed Deliver a Wake-Up Call to Markets?

WTI/USD Fundamentals

Wednesday (December 14)

• 8:30 US Core Retail Sales. Estimate 0.4%. Actual 0.2%
• 8:30 US PPI. Estimate 0.1%. Actual 0.4%
• 8:30 US Retail Sales. Estimate 0.3%. Actual 0.1%
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.4%
• 9:15 US Capacity Utilization Rate. Estimate 75.1%
• 9:15 US Industrial Production. Estimate -0.2%
• 10:00 US Business Inventories. Estimate -0.1%
• 10:30 US Crude Oil Inventories. Estimate -1.4M. Actual -2.6M
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.75%
• 14:30 US FOMC Press Conference

Upcoming Key Events

Thursday (December 15)

• 13:30 US CPI. Estimate 0.2%
• 13:30 US Core CPI. Estimate 0.2%
• 13:30 US Philly Fed Manufacturing Index. Estimate 9.1
• 13:30 US Unemployment Claims. Estimate 258K

*All release times are EST

*Key events are in bold

WTI/USD for Wednesday, December 14, 2016

WTI/USD December 14 at 11:05 EST

Open: 52.29 High: 52.75 Low: 51.84 Close: 52.50

WTI USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted slight gains in North American trade
• 52.22 is fluid and 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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