US Crude Rises on Dismal US Durables

US crude has posted gains on Thursday, as crude futures are trading at $33.19 a barrel in the North American session. Brent crude is currently trading at $34.38 per barrel. In economic news, US Core Durable Goods Orders posted a decline of 1.2%, and Durable Goods Orders plunged 5.1%. There was better news on the employment front, as unemployment claims dipped to 278 thousand, beating the forecast. Pending Home Sales disappointed with a gain of 0.1%, well below the forecast.

US crude prices briefly pushed close to the $35 level on Thursday, marking the commodity’s highest level in three weeks. Crude prices climbed following dismal readings from US durables in December. Core Durable Goods Orders dropped 1.2%, marking the third decline in four readings. Durable Goods Orders slipped 5.1%, the steepest slide since August 2014. These numbers underscore continuing weakness in the US manufacturing sector, which has improved despite the stronger economy. Elsewhere, Pending Home Sales posted a weak gain of 0.1%, compared to the estimate of 1.0%. There was some good news, as unemployment claims fell to 278 thousand, below the estimate of 281 thousand and a strong improvement from last week’s reading of 293 thousand.

Crude may have flexed some muscle on Thursday, but prices remain very soft, as the supply glut shows no signs of improving anytime soon. Earlier in the week, Crude Oil Inventories posted a huge surplus of 8.4 million, compared to 4.0 million a week earlier. This reading was much higher than the forecast of 3.8 million. China is in the midst of a slowdown, and recent weak numbers from the Asian giant, notably a drop in the most recent GDP report, has led to a significant drop in demand for oil, resulting in lower oil prices. Adding to oil’s woes is the return of Iran as an oil exporter as well as high production in North America, Russia and OPEC. There has been some discussion of cooperation between Russia and OPEC, and predictably, these reports have boosted oil prices. However, absent any concrete announcements of cooperation between oil exporters, these gains could be short-lived.

The Federal Reserve was on center stage on Wednesday, and as expected, the Fed maintained interest rates at 0.25%. The monetary policy statement was dovish in tone, as policymakers took note of soft spots in the economy, such as consumer spending and exports. The US inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. At the same time, the Fed emphasized that the US labor market remains strong. Will we see another rate hike in March? It’s a possibility, but the Fed has yet to provide any strong hints on its next move. Given the Fed’s continuing concerns about a lack of inflation however, it’s difficult to foresee another rate hike in March absent a strong improvement in key US indicators.

WTI/USD Fundamentals

Thursday (Jan. 28)

• 8:30 US Core Durable Goods Orders. Estimate -0.1%. Actual -1.2%
• 8:30 US Unemployment Claims. Estimate 281K. Actual 279K
• 8:30 US Durable Goods Orders. Estimate -0.6%. Actual -5.1%
• 10:00 US Pending Home Sales. Estimate 1.0%. Actual 0.1%
• 10:30 US Natural Gas Storage. Estimate -215B. Actual -211B

Friday (Jan. 29)

• 8:30 US Advance GDP. Estimate 0.8%

*Key releases are highlighted in bold

*All release times are EST

WTI/USD for Thursday, January 28, 2016

WTI/USD January 28 at 10:50 GMT

Open: 32.30 Low: 31.75 High: 34.81 Close: 33.41

WTI/USD Technical

• WTI/USD posted slight gains in the Asian session. The pair leveled off in European trade and has resumed its rise in the North American session.
• There is resistance at 35.09
• 32.22 has switched to support following gains by the pair

Further levels in both directions:

• Below: 32.22, 30.00, 26.64 and 22.88
• Above: 35.09, 37.75 and 39.87

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