US Crude Flat Ahead of Fed Minutes

US crude is flat on Wednesday, as March futures are trading at the $29 level in the European session. Brent crude futures are trading quietly at $32.55. On the release front, the US releases two key indicators – Building Permits and PPI. Today’s highlight is the Federal Reserve minutes from its January policy meeting.

With the world awash in a glut of oil and oil prices at multi-year lows, one would think that oil producing nations would collaborate and restrict output in order to prop up prices. However, internal bickering has resulted in a situation of “every man for himself”, as production remains at record levels. In the latest twist, Russia and some members of OPEC announced that they have agreed to freeze output levels, but said the agreement was contingent in other producers joining in. It would indeed be a shock if oil exporters could actually get their act together, as we’ve seen similar chatter before with no concrete results. A major fly in the ointment is Iran, a major exporter which has been shut out international markets for years and has just started to export its oil, following the removal of sanctions by the West. Iran is desperate for foreign cash and will likely want to export as much oil as it can, without regard to its market competitors. Under the current circumstances, oil purchasers can continue to get a good night’s sleep, as oil prices are unlikely to spike anytime soon.

The Federal Reserve will again be in the spotlight on Wednesday, with the release of the minutes of the January policy meeting. In the policy statement after that meeting, Janet Yellen & Co. sounded cautious, saying  that the Fed was “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation”. The decision to hold interest rates at 0.25% was unanimous, and the Fed acknowledged that the US economy was slowing down. Gone was the optimism which characterized the December meeting, when the Fed raised rates and hinted at further rate hikes in 2016. Given the current economic situation, many experts expect no more than two rate hikes this year, perhaps in June and December. At the same time, any improvement in key US numbers will heat up speculation about a possible March hike.  There was an interesting development last week when Janet Yellen appeared before Congress and refused to rule out negative interest rates. The Fed has rejected making such a move in the past, and this is unlikely to change. Still, Negative Interest Rate Policies (NIRP) has become a relevant tool for central banks. The Bank of Japan shocked the markets in January when it adopted negative rates, and the ECB has had this policy in place for some time on deposits, and has hinted that it could adopt this scheme to its benchmark rate, which currently stands at 0.05%. Such a scheme is supposed to combat deflation and boost economic growth by pressuring banks to increase lending.

WTI/USD Fundamentals

Wednesday (Feb. 17)

• 8:30 US Building Permits. Estimate 1.21M
• 8:30 US PPI. Estimate -0.2%
• 8:30 US Core CPI. Estimate 0.1%
• 8:30 US Housing Starts. Estimate 1.16M
• 9:15 US Capacity Utilization Rate. Estimate 76.7%
• 9:15 US Industrial Production. Estimate 0.3%
• 14:00 FOMC Meeting Minutes
• 18:00 FOMC James Bullard Speaks

Upcoming Key Events

Thursday (Feb. 18)

• 8:30 US Philly Fed Manufacturing Index. Estimate -2.9 points
• 8:30 US Unemployment Claims. Estimate 275K

*Key events are in bold

*All release times are EST

WTI/USD for Wednesday, February 17, 2016

WTI/USD February 17 at 4:50 EST

Open: 29.25 Low: 28.73 High: 29.46 Close: 29.36

WTI/USD Technical

• WTI/USD has been flat in the Asian and European sessions.
• There is weak resistance at the round number of 30.00. Will this line break during the day?
• 26.64 is providing support

Further levels in both directions:

• Below: 26.64, 22.88 and 17.05
• Above: 30.00, 32.22, 35.09 and 37.75

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