US Crude Dips Close to $32, Consumer Confidence Slides

US crude has posted gains on Tuesday, as March futures trade just below the $32 line in the North American session. Brent crude futures are trading $33.20. On the economic front, US key events were a mix. CB Consumer Confidence slid to 92.2 points, well short of the forecast. Existing Home Sales remained steady at 5.47 million and beat expectations. We’ll get a look at US Crude Inventories on Wednesday.

US crude prices started off the week with gains, but these gains were erased on Tuesday, as the commodity has slipped close to the $32 level. On Monday, the International Energy Agency (IEA) issued a pessimistic report about the future of oil prices. In its medium term report, which provides a 5-year projection, the agency said that oil prices are unlikely to show any significant rise before 2017, and any price rise will be gradual due to the huge inventories which have filled storage facilities to capacity across the globe, including those in the US. The IEA did not mince words in its assessment, stating that “today’s oil market conditions do not suggest that prices can recover sharply in the immediate future – unless, of course, there is a major geopolitical event”. Saudi Arabia and Russia have shown willingness to lower production, but Iran has been far less flexible, as it is desperate for cash and is looking to gain as much market share as possible following a long absence as an oil exporter.

The Federal Reserve continues to be scrutinized by the markets, as the timing of another rate hike remains up in the air. The Fed sent out a cautious message in last week’s policy minutes, which reiterated the central bank’s concern that turmoil in global markets could have negative repercussions for the US economy. Policymakers sent out a broad hint that a rate hike is unlikely in March, as they discussed “altering their earlier views of the appropriate path for the target range for the federal funds rate”. This could have a negative impact on the US dollar, as investors will be looking at other options if US rates do not move higher. Fed policymakers appear divided on the Fed’s upcoming strategy. Janet Yellen said last week that the Fed still planned to raise rates later in 2016, but FOMC member James Bullard argued that there was room to delay any rate moves, given global financial turmoil and weak US inflation. Many market players are skeptical that the Fed will make any moves before next year. In December, the Fed hinted at a series of rate hikes during 2016, but the turmoil in the financial markets and the downturn in the US economy in early 2016 have left the timing of another hike in doubt.

WTI/USD Fundamentals

Tuesday (Feb. 23)

• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.8%. Actual 5.7%
• 10:00 US CB Consumer Confidence. Estimate 97.4 points. Actual 92.2 points
• 10:00 US Existing Home Sales. Estimate 5.37M. Actual 5.47M
• 10:00 US Richmond Manufacturing Index. Estimate 2 points. Actual -4 points
• 20:30 US FOMC Stanley Fischer Speaks

Wednesday (Feb. 24)

• 10:00 US Existing Home Sales. Estimate 522K
• 10:30 US Crude Oil Inventories

*Key events are in bold

*All release times are EST

WTI/USD for Tuesday, February 23, 2016

WTI/USD February 23 at 11:10 EST

Open: 33.19 Low: 32.09 High: 33.55 Close: 31.88

WTI/USD Technical

• WTI/USD showed limited movement in the Asian session. The pair posted gains in the European session, but has reversed directions and posted sharp losses in North American trade.
• 32.22 has switched to resistance following losses by the pair
• The round number of 30.00 is providing support

Further levels in both directions:

• Below: 30.00, 26.64 and 22.88
• Above: 32.22, 35.09, 37.75 and 40.00

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