WTI/USD – US Crude Rises Ahead of Fed Rate Statement

US crude has posted gains on Tuesday, rebounding from the losses the Monday session. In North American trade, US crude futures are trading at $53.47. Brent crude futures are trading at $56.31, as the Brent premium stands at $2.84. On the release front, CB Consumer Confidence fell to 111.8, short of the forecast of 112.6. Wednesday promises to be a busy day. US will publish the ADP payrolls report and ISM Manufacturing PMI. The weekly Crude Oil Inventories report will also be released, with a surplus of 3.1 million barrels expected. As well, the Federal Reserve will set the benchmark interest rate and release a rate statement.

OPEC and other producers signed an agreement in December to curb production, aimed at boosting weak oil prices. This agreement went into effect on January 1. Fast forward to the end of January, and crude prices have actually edged lower this month. It appears that despite the production deal, the global oversupply has not receded. What gives? One possibility is that the exporters which signed the deal have not kept to their production quotas – compliance has been a sore point in previous OPEC agreements and the pattern could be repeating itself. As well, US oil drilling is on the upswing, as underscored by the number of rigs commencing operation, which continues to increase each week. We’ll have to wait for January production reports in the US and from OPEC to get a better idea of which way oil prices are headed.

Analysts had predicted that US economic growth would soften in the fourth quarter, and Advance GDP fell short of the estimate. The economy expanded 1.9%, shy of the estimate of 2.1%. Business investment and consumer spending remains solid and should continue into 2017. However, Trump’s protectionist rhetoric and action, which saw tensions escalate with Mexico last week, could darken the bright picture for the US economy.

Donald Trump continues to stir controversy, after signing a host of executive orders last week which have been condemned both domestically and abroad. Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico. He has also ordered work to begin on a wall with Mexico and banned immigrants from seven Moslem countries. Trump’s unconventional and disjointed approach to international politics and trade could have major ramifications on global trade and could lead to financial instability in global markets, triggering volatility in the currency markets. Just a few days before being sworn in as president, Trump stated that the US dollar was “too strong”, blaming a weak Chinese currency. Predictably, the greenback lost ground after Trump’s remarks. It’s a safe bet that Trump’s offhand tweets and comments will continue to fuel market volatility.

Geopolitical and Trade Risks Dominate Market Moves

Fed Expected to Keep Rates on Hold Awaiting Trump Plan

WTI/USD Fundamentals

Tuesday (January 31)

• 8:30 US Employment Cost Index. Estimate 0.6%. Actual 0.5%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.0%. Actual 5.3%
• 9:45 US Chicago PMI. Estimate 55.1. Actual 50.3
• 10:00 US CB Consumer Confidence. Estimate 112.6. Actual 111.8

Upcoming Key Releases

Wednesday (February 1)

• 8:15 US ADP Nonfarm Employment Change. Estimate 165K
• 10:00 US ISM Manufacturing PMI. Estimate 55.0
• 10:30 US Crude Oil Inventories. Estimate 3.1M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rates. Estimate <0.75%

*All release times are GMT

*Key events are in bold

WTI/USD for Tuesday, January 31, 2017

WTI/USD January 31 at 11:40 EST

Open: 52.66 High: 53.56 Low: 52.25 Close: 53.47

WTI USD Technical

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

• 52.22 remains a weak support level
• 58.32 is the next resistance line
• Current range: 52.22 to 58.32

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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