WTI/USD – Oil Steady at $45 on Strong Housing and Employment Numbers

US crude is almost unchanged in Wednesday trading. In the North American session, WTI/USD futures are trading at $45.41 per barrel. Brent crude is trading at $46.87, as the Brent premium has narrowed to $1.46. On the economic front, US indicators were mostly positive, as Unemployment Claims and Existing Home Sales both beat expectations. However, the Philly Fed Manufacturing Index was well short of the estimate, posting a decline of 2.9 points.

US crude stockpiles continue to decrease, according to the Energy Information Administration. The EIA published its weekly inventory report on Wednesday, and the indicator showed a decline of 2.3 million barrels, a much larger draw-down than the estimate of 1.3 million. Continuing large declines in US stockpiles should push crude prices higher due to stronger demand, but this isn’t occurring, due to a continuing oversupply of crude. Drilling activity in the US is on the upswing, as the number of US drilling rigs continues to increase. This is raising concerns that higher production levels in the US will exacerbate supply levels and push down crude prices. In late June, US crude broke above the $50 level, but has since dropped about 10 percent as it hovers at around $45.

The Federal Reserve will meet for a policy meeting on July 27 but is unlikely to announce a rate cut at that time, given current economic conditions. Is the Federal Reserve leaning more towards a rate hike before the end of the year? The markets appear to think so, as the chances of a rate hike this year has been priced in at 47%, up from just 20% at the start of July. This positive sentiment is a result of strong retail sales and housing reports over the past week. Another rate hike will be data-dependent, so if key indicators beat expectations, speculation of a rate hike will continue to increase. However, the Fed will be hesitant to make a move if inflation remains stuck at very low levels, nowhere near the Fed’s target of around 2 percent.

WTI/USD Fundamentals

Thursday (July 21)

• 8:30 US Philly Fed Manufacturing Index. Estimate 5.1. Actual -2.9
• 8:30 US Unemployment Claims. Estimate 271K. Actual 253K
• 9:00 US HPI. Estimate 0.4%. Actual 0.2%
• 10:00 US Existing Home Sales. Estimate 5.48M. Actual 5.57M
• 10:00 US CB Leading Index. Estimate 0.2%. Actual 0.3%
• 10:30 US Natural Gas Storage. Estimate 40B

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, July 21, 2016

WTI/USD July 21 at 11:20 EDT

Open: 45.69 High: 46.09 Low: 45.25 Close: 45.41

WTI USD Technical

• WTI/USD posted small gains in the Asian session but gave up these gains in the European session. The pair is unchanged in North American trade
• There is resistance at 46.69
• 43.45 is providing support

Further levels in both directions:

• Below: 43.45, 39.32 and 35.25
• Above: 46.69, 50.13 and 53.50

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