WTI/USD – US Crude Pauses After Fed Hike Pushes Oil Lower

US crude is showing little movement on Thursday, after posting sharp losses in the Wednesday session. In North American trade, WTI/USD futures are trading at $51.17. Brent crude futures are trading at $54.13, as the Brent premium stands at $2.96. In the US, CPI and Core CPI both came in at 0.2%, also matching the estimates. Other key events looked sharp, as unemployment claims dipped to 254 thousand, while the Philly Fed Manufacturing Index surged to 21.5 points, well above expectations.

US crude prices have slipped 2.9% since Wednesday, when the Federal Reserve hiked rates by a quarter point, to 0.50%. Although the rate move was widely expected and priced in by the markets at close to 100%, the markets reacted strongly to the momentous event. The rate hike marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year”. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimate. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he plans to increase government spending and cut taxes. If Trump’s economic policies lead to higher inflation levels, the Fed may have to step in with larger hikes in order to keep the economy form overheating.

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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

WTI/USD Fundamentals

Thursday (December 15)

• 8:30 US CPI. Estimate 0.2%. Actual 0.2%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.2%
• 8:30 US Philly Fed Manufacturing Index. Estimate 9.1. Actual 21.5
• 8:30 US Unemployment Claims. Actual 254K
• 8:30 US Current Account. Estimate -111B. Actual -113B
• 8:30 US Empire State Manufacturing Index. Estimate 3.2. Actual 9.0
• 9:45 US Flash Manufacturing PMI. Estimate 54.2. Actual 54.2
• 10:00 US NAHB Housing Market Index. Estimate 63 points. Actual 70 points
• 10:30 US Natural Gas Storage. Estimate -126B. Actual -147B
• 16:00 US TIC Long-Term Purchases

Upcoming Key Events

Friday (December 16)

• 8:30 US Building Permits. Estimate 1.24M 
• 8:30 US Housing Starts. Estimate 1.23M

*All release times are EST

*Key events are in bold

WTI/USD for Thursday, December 15, 2016

WTI/USD December 15 at 12:50 EST

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

WTI USD Technical

• WTI/USD was flat in the Asian session. The pair posted slight gains in European trade but then retracted. WTI/USD recorded sharp losses in the North American session but has recovered much of these losses
• 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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