US Crude Flat, New Home Sales Slips

US crude is steady on Wednesday, as March futures trade at $31.00 a barrel in the North American session. Brent crude futures are showing little movement, trading at $33.00. On the economic front, US New Home Sales dropped sharply to 494 thousand, short of expectations. US Crude Inventories jumped sharply to 3.5 million, well above expectations. On Thursday, there are two key releases in the US – Core Durable Goods Orders and Unemployment Claims.

US crude prices have managed to remain above $30, but the prognosis for a recovery in prices does not appear promising. Oil producing nations have not been able to agree on ways to reduce production in order to raise prices. Saudi Arabia and Russia have shown willingness to lower production, but not unexpectedly, 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. On Tuesday, Saudi oil minister Ali Ibrahim Naimi said that producers could meet in March to discuss an output freeze, but not production cuts. Earlier in the week, the International Energy Agency (IEA) issued a pessimistic report about the future of oil prices. The IEA 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”. Meanwhile, US Crude Inventories jumped to 3.5 million, much higher than the estimate of 2.0 million, as US crude supplies remain much higher than demand.

Is the American consumer more nervous about the economy? The answer is a resounding “yes” according to a key indicator, CB Consumer Confidence. The indicator dropped sharply to 92.2 points in February, well off the estimate of 97.4 points. This marked a three-month low for the key indicator. Weaker consumer confidence could well translate into a decrease in consumer spending, a key driver of economic growth. Meanwhile, the US manufacturing sector continues to struggle. Recent manufacturing reports have pointed to contraction in the sector, and this was again the case with the Richmond Manufacturing report, which slipped to -4 points in February, short of the forecast of +2 points. This was the indicator’s worst reading since September 2015. On Thursday, we’ll get a look at Core Durable Goods Orders, a key manufacturing indicator. The markets are braced for a small gain of 0.2%, and if this release misses the estimate, it could have a sharp impact on the currency markets.

WTI/USD Fundamentals

Wednesday (Feb. 24)

• 9:45 US Flash Services PMI. Estimate 53.4 points. Actual 49.8 points
• 10:00 US New Home Sales. Estimate 522K. Actual 494K
• 10:30 US Crude Oil Inventories. Estimate 2.0M. Actual 3.5M
• 19:00 US FOMC James Bullard Speaks

Upcoming Key Events

Thursday (Feb. 25)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%
• 8:30 US Unemployment Claims. 271K

*Key events are in bold

*All release times are EST

WTI/USD for Wednesday, February 24, 2016

WTI/USD February 24 at 11:20 EST

Open: 31.40 Low: 30.55 High: 31.57 Close: 31.02

WTI/USD Technical

• WTI/USD has posted slight losses in the Asian and European sessions, but is steady in North American trade.
• There is resistance at 32.22
• The round number of 30.00 continues to provide 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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