US Crude Drops on Huge Crude Inventory Surplus

US crude futures have lost ground on Wednesday, trading at $40.11 a barrel in the North American session. Brent crude futures are trading at $40.73. In economic news, Crude Oil Inventories rose 9.4 million, much higher than the forecast of 2.5 million. New Home Sales climbed to 512 thousand, matching the forecast.

The Energy Information Administration (EIA) released its weekly crude oil inventory report on Wednesday, and the size of the surplus surprised the markets and sent US crude prices downwards. The figure of 9.4 million marked a 3-month high, and underscores a huge oversupply of oil worldwide. Market players are predicting that the surplus will last at least two more years, and Phillip Futures analyst Daniel Ang said in a note on Wednesday that the current uptrend is unsustainable due to oversupply.

Will the real Federal Reserve please stand up? Last week’s Federal Reserve policy statement appeared to pour cold water on any imminent rate hikes, but “not so fast”, according to two Federal Reserve officials. On Monday, John Williams, president of the San Francisco Fed, said that the Fed could raise rates in April and June, if economic conditions improve. Although the dot plot (an FOMC projection of rate hikes) was lowered at the March meeting, he insisted that the Fed had not changed its path of rate hikes. His comments were echoed by Atlanta Fed Dennis Lockhart, who also said that an April rate move was a clear possibility. Lockhart noted that the US economy was holding up well, despite weak global conditions. Lockart said that the economy was close to full employment and the Fed’s target of 2 percent inflation was attainable. However, it should be kept in mind that neither Willams nor Lockhart is a voting member of the FOMC. On Wednesday, St. Louis Federal President James Bullard said that with the US unemployment rate at very low levels, the Fed could be forced to raise rates sooner rather than later.

WTI/USD Fundamentals

Wednesday (March 23)

• 9:00 US FOMC Member James Bullard Speaks
• 10:00 US New Home Sales. Estimate 512K. Actual 512K
• 15:30 US Crude Oil Inventories. Estimate 2.5M. Actual 9.4M

Upcoming Key Events

Thursday (March 24)

• 13:30 US Core Durable Goods Orders. Estimate -0.2%
• 13:30 US Unemployment Claims. Estimate 267K

*Key events are in bold

*All release times are DST

WTI/USD for Wednesday, March 23, 2016

WTI/USD March 23 at 13:05 DST

Open: 41.10 Low: 40.02 High: 41.27 Close: 40.11

WTI/USD Technical

• WTI/USD was flat in the Asian session and posted losses in European trade. This downward movement has continued in the North American session.
• There is resistance at 43.45
• 40.00 is under strong pressure as a support line and could break in the North American session.

Further levels in both directions:

• Below: 40.00, 37.75, 35.09 and 32.22
• Above: 43.45, 46.69 and 50.89

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