US Crude Drifting at $48, Manufacturing PMI Flat

US crude is showing little movement on Monday, continuing the lack of movement which characterized much of last week. Crude is trading at $47.97 in the North American session. Brent crude is trading at $48.74, as the Brent premium stands at $0.77. On the release front, it’s a quiet start to the week. US Flash Manufacturing PMI posted a reading of 50.5 points, short of the estimate of 51.0. On Tuesday, the US releases New Home Sales, with the estimate standing at 521 thousand.

Crude prices remain steady, as the commodity touched a high of $49.20 on Friday, its highest level since October 2015. Crude Oil Inventories surprised the markets last week, posting a surplus of 1.3 million barrels. The markets had expected a sharp decline of 3.2 million. This weekly indicator of US crude stockpiles has declined only twice since February, as US crude stockpiles remain at high levels. Nevertheless, oil prices have remained climbed in recent weeks, in large part a result of production problems such as the massive wildfire in Alberta and disruptions in Libya and Nigeria. As well, the US economy appears to have recovered from a weak first quarter, thus increasing demand for oil and boosting crude prices.

Will the Federal Reserve make a move at its June policy meeting? Last week’s Federal Reserve minutes were surprisingly hawkish, resulting in strong volatility in the global currency markets. The minutes indicated that a June rate hike remains firmly on the table. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish in comparison to recent statements by Fed chair Janet Yellen, which were more cautious about the strength of the US economy. The markets were skeptical that June would be a “live meeting”, with most analysts assuming that the Fed would continue to sit on the sidelines. The minutes have drastically changed market sentiment, however, since it’s clear that the June meeting will be a crucial one, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, upcoming major economic indicators will be under the market microscope, particularly inflation and employment numbers.

WTI/USD Fundamentals

Monday (May 23)

• 6:15 US FOMC Member James Bullard Speaks
• 9:45 US Flash Manufacturing PMI. Estimate 51.0. Actual 50.5

Upcoming Key Events

Tuesday (May 24)

• 10:00 US New Home Sales. Estimate 521K

*Key events are in bold

*All release times are EDT

WTI/USD for Monday, May 23, 2016

WTI/USD May 23 at 11:35 EDT

Open: 48.16 Low: 47.41 High: 48.27 Close: 47.97

WTI/USD Technical

• WTI/USD was flat in the Asian session. The pair posted losses in the European session but has recovered in North American trade
• There is resistance at 50.13
• 46.69 is providing support

Further levels in both directions:

• Below: 46.69, 43.45, 40.00 and 37.75
• Above: 50.13, 53.50 and 56.79

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