Crude Slips to $42 Ahead of US Durables, Unemployment Claims

US Crude has reversed directions on Wednesday and lost ground, as the oil trades just above $42 a barrel in the European session. In the US, there are a host of releases ahead of the Thanksgiving holiday, led by Core Durable Goods Orders and Unemployment Claims.

Oil posted gains on Tuesday, but this turned out to be a short-lived spike. Crude jumped in response to the downing of a Russian fighter jet by Turkey near the Turkish-Syrian border, raising tensions in the Middle East. Oil also received a boost as Saudi Arabia expressed willingness to cooperate with OPEC and non-OPEC members to stabilize oil prices. This was a notable development as the Saudis have previously opted to allow market forces to squeeze out the higher cost producers, rather than act to reduce production levels in order to raise the price of oil. Since August, oil prices have dived, as OPEC members and other oil producers continue to pump out oil at high levels, which has resulted in a global glut, as supply has far outstripped demand. If the current situation continues, analysts say that we could see oil drop below $30 a barrel as early as next year. The markets will be keeping a close eye on the OPEC meeting on December 4th. It’s doubtful that we’ll see oil move much higher before then, as the economic slowdown in China and other emerging countries continues to have a negative impact on global markets and has led to a sharp decline in commodity prices.

There were no surprises from US Preliminary GDP in the third quarter. The revised GDP report came in at 2.1%, very close to the Advanced GDP reading of 2.0%. Although these numbers pale in comparison to the blistering 3.7% we saw in Q2, they nonetheless point to respectable growth by the US economy in a difficult global environment. Meanwhile, Consumer Confidence slipped badly, dropping to 90.4 points, compared to 97.6 points a month earlier. This was well off the estimate of 99.3 points, and marked the indicator’s weakest showing in 12 months. After this disappointing consumer confidence reading, the markets will be keeping a close eye on Wednesday’s consumer spending indicators, with the release of October’s durable goods reports.

Will the Federal Reserve press the rate trigger at the December policy meeting? Last week’s Fed minutes did not confirm a December rate hike, but most analysts feel that the long-awaited move will indeed occur next month. The Fed hinted at a rate hike in its October policy statement, and the markets have been abuzz ever since. Last week, New York Fed President William Dudley said there is a “strong case” for a rate hike in December as long as economic data remains strong. At the past two policy meetings, the vote against a rate hike was 9-1, but that clearly will not be the outcome at the December meeting. With the US economy showing improvement and employment and consumer indicators pointing upwards, the markets appear prepared for a small hike of 0.25% or 0.50%, and there is a growing view that modest, incremental moves would not cause unwanted turbulence on the global markets. One fly in the ointment is that of weak inflation levels. as the Fed has repeatedly stated that inflation is a key consideration in any decision to raise rates. With the critical Fed meeting only a few weeks away, every key indicator and comment from a Fed member will be under close scrutiny from the markets.

WTI/USD Fundamentals

Wednesday (Nov. 25)

• 13:30 US Core Durable Goods Orders. Estimate 0.5%
• 13:30 US Unemployment Claims. Estimate 273K
• 13:30 US Core PCE Price Index. Estimate 0.1%
• 13:30 US Durable Goods Orders. Estimate 1.6%
• 13:30 US Personal Spending. Estimate 0.3%
• 13:30 US Personal Income. Estimate 0.4%
• 14:00 US HPI. Estimate 0.5%
• 14:45 US Flash Services PMI. Estimate 55.2 points
• 15:00 US New Home Sales. Estimate 500K
• 15:00 US Revised UoM Consumer Sentiment. Estimate 93.2 points
• 15:00 US Revised UoM Inflation Expectations
• 15:30 US Crude Oil Inventories. Estimate 1.2M
• 17:00 US Natural Gas Storage. Estimate 5B

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Wednesday, November 25, 2015

WTI/USD November 25 at 13:10 GMT

WTI/USD 42.10 H: 43.09 L: 42.02

XAU/USD Technical

• WTI/USD was steady in the Asian session and has posted considerable losses in European trade.
• On the downside, 39.87 is under pressure and could be tested in the North American session.
• 42.59 is a weak resistance line.

Further levels in both directions:

• Below: 39.87, 37.75 and 35.09
• Above: 42.59, 44.30, 47.04 and 49.06

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