Oil Under Pressure over Supply Glut

WTI crude is little changed on Tuesday, trading at $45.85 a barrel in the European session. There are no major US events on today’s schedule. Later on Tuesday, the US releases Factory Orders, with the markets expecting a decline of 0.8%. Traders should keep a close eye on several US key events on Wednesday, led by Nonfarm Payrolls. As well, Janet Yellen will testify before the House Financial Services Committee in Washington.

Oil prices remain under pressure, as concerns about a global supply glut continue to spook the markets. Weaker demand from China, the world’s second largest oil consumer, coupled with high Russian production has kept oil prices low. As well, OECD members have not cut production levels, despite persistently oversupply and low prices. Adding to the mix, US crude stockpiles have risen for 4 straight weeks, and the trend is expected to continue this week as well. At the same time, oil could move higher if the markets feel that the Federal Reserve will take action and raise interest rates in December. This was underscored last week, as the hawkish Fed policy statement resulted in oil prices surging 6 percent.

Last week, the Federal Reserve caught the markets off guard with a hawkish policy statement. The Fed stated that a rate hike was a possibility in December, depending on the strength of employment and inflation numbers. The markets had essentially written off a move by the Fed before 2016, so the statement caused sharp volatility in the currency markets, with the US dollar showing broad gains after the dust had settled. The next Fed meeting is mid-December, and the markets will be in alert mode for any further hints about a rate hike. As well, upcoming key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers will play a critical role in determining whether the Fed presses the rate trigger in December. Still, traders should keep in mind that the markets sometimes overreact to Fed statements or comments from Fed policymakers, and the central bank could easily continue to wait on the sidelines until 2016.

With the Federal Reserve statement behind us, the markets are once again focused on economic releases. There was much anticipation ahead of the US Advance GDP for the third quarter, which was released on Thursday. As it turned out, this key event didn’t shake up the markets, as the reading of a 1.5% gain was almost identical to the forecast of 1.6%. Still, this figure was much lower than the Q2 Final GDP of 3.9%, pointing to a slowdown in the US economy. Meanwhile, Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand. Will the upcoming Nonfarm Payrolls also beat the forecast? On Friday, US key releases wound up the week on a positive note. Employment Cost Index jumped 0.6%, pointing to an increase in wages for US workers. The UoM Consumer Sentiment, an important gauge of consumer confidence, improved to 90.0 points, within expectations.

WTI/USD Fundamentals

Tuesday (Nov. 3)

• 15:00 US Factory Orders. Estimate -0.8%
• 15:00 US IBD/TIPP Economic Optimism. Estimate 47.5 points
• All Day – US Total Vehicle Sales. Estimate 17.8M

Upcoming Key Events

Wednesday (Nov. 4)

• 13:15 US ADP Nonfarm Employment Change. Estimate 183K
• 13:30 US Trade Balance. Estimate -42.7B
• 15:00 Federal Reserve Chair Janet Yellen Testifies
• 15:00 US ISM Non-Manufacturing PMI. Estimate 56.6 points

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Tuesday, November 3, 2015

WTI/USD November 2 at 11:40 GMT

WTI/USD 46.54 H: 46.64 L: 46.01

XAU/USD Technical

• WTI/USD was flat in the Asian session and has posted marginal gains in European trade.
• 44.30 continues to provide support.
• 47.04 is a weak resistance line and could be tested during the day.

Further levels in both directions:

• Below: 44.30, 42.59 and 39.87
• Above: 47.04, 49.06 and 53.86

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.