WTI/USD – US Crude Jumps as OPEC Projects Lower US Oil Production

US crude prices have posted sharp gains on Tuesday, as WTI/USD futures are trading at $46.61 per barrel in the North American session. Brent crude is trading at $48.26, as the Brent premium has widened to $1.65. On the release front, it was a disappointing day for US indicators. JOLTS Job Openings dropped to 5.50 million, well below the estimate of 5.74 million. Wholesale Inventories dropped to 0.1% in May, compared to 0.6% a month earlier.

US crude prices are up 4 percent on Tuesday, as WTI/USD has pushed above the $46 level. Still the commodity remains considerably shy of last week’s high of $49.33. Last week’s EIA Crude Oil Inventories report showed a decline of 2.2 million barrels last week, much stronger than the API Crude Oil Stock report, which had forecast a decline of some 6.7 million barrels. The actual decline was much smaller than many market players had anticipated and this led to a sharp drop in crude prices. After three losing sessions, crude has reversed directions on Tuesday, after an OPEC monthly report projected that demand for oil would increase as the oversupply is expected to disappear next year. The report said that US production would continue to decline in 2017, while developing economies such as India and China would increase their demand for crude. West Texas Crude as well as Brent Crude were up sharply following the OPEC report.

The Federal Reserve hasn’t strayed from the sidelines in the first half of 2016, and the markets aren’t expecting a dramatic shift anytime soon. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase. Last week’s minutes from the June policy meeting indicated that Janet Yellen & Co. remain cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike sometime this year will increase.

WTI/USD Fundamentals

Tuesday (July 12)

• 6:00 US NFIB Small Business Index. Estimate 94.1. Actual 94.5
• 9:15 US FOMC Member Daniel Tarullo Speaks
• 9:35 US FOMC Member James Bullard Speaks
• 10:00 US JOLTS Job Openings. Estimate 5.74M. Actual 5.50M
• 10:00 US Wholesale Inventories. Estimate 0.2%. Actual 0.1%
• 13:01 US 10-year Bond Auction

*Key events are in bold

*All release times are EDT

WTI/USD for Tuesday, July 12, 2016

WTI/USD July 12 at 13:00 EDT

Open: 44.60 High: 46.82 Low: 44.58 Close: 46.61

WTI / USD Technical

• WTI/USD showed limited movement in the Asian session. The pair has posted strong gains in the European and North American sessions
• 46.69 was tested earlier in resistance and is a weak line. It could break during the North American session
• 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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