US Crude Steady, Markets Eye Crude Oil Inventories, OPEC Summit

US crude prices have posted small losses on Wednesday, continuing the trend which marked the Tuesday session. Crude is trading at $48.30 in the North American session. Brent crude is trading at $49.20, for a premium of $0.90. On the release front, ISM Manufacturing PMI came in at 51.3 points, beating expectations. Traders should be prepared for volatility from WTI/USD on Thursday, with a host of key events. The US will release two major employment releases, ADP Nonfarm Payrolls and Unemployment Claims. OPEC members will meet in Vienna, and the US will publish Crude Oil Inventories.

US crude punched above the symbolic level of $50 last week and has shown little movement since then. OPEC members will gather in Vienna on Thursday, but analysts are not expecting OPEC members to reach an agreement on a production cap or new targets, given the deep animosity between Saudi Arabia and Iran. Iran has refused to agree on an output policy in recent years, preventing members from reaching an agreement to lower or freeze production in order to boost low oil prices. Iran reiterated its policy on Wednesday, saying it would not sign off on any commitment regarding output levels. The current situation has allowed OPEC countries to pump at will, as members have adopted a mantra of “every man for himself”, jockeying for a larger piece of the oil market pie. Thursday will also see the release of Crude Oil Inventories, which could result in volatility from WTI/USD. Last week, the indicator was unexpectedly soft, posting a decline of 4.2 million barrels, compared to an estimate of -1.7 million.

Only a few weeks ago, a rate hike in the US was considered very unlikely. However, recent comments by Federal Reserve chair Janet Yellen and other Fed policymakers have strongly hinted that a rate hike is on the table this summer. On Friday, Yellen said that if the US economy continued to improve, a rate hike would be appropriate in the “coming months”. This was followed by St. Louis Reserve President James Bullard, who said on Monday that global markets were “well prepared” for a summer interest rate rise, although he didn’t provide any specific dates. Odds of a rate hike in June have increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. According to CME Group, traders have priced in a June rate hike at 28%, 60% for July and 68% in September. Market sentiment has strongly shifted towards the Fed raising rates, and this could boost the US dollar against its rivals.

WTI/USD Fundamentals

Wednesday (June 1)

• 9:45 US Final Manufacturing PMI. Estimate 50.5. Actual 50.7
• 10:00 US ISM Manufacturing PMI. Estimate 50.5. Actual 51.3
• 10:00 US Construction Spending. Estimate 0.5%. Actual -1.8%
• 10:00 US ISM Manufacturing Prices. Estimate 58.0. Actual 63.5
• All Day – US Total Vehicle Sales. Estimate 17.2M
• 14:00 US Beige Book

Upcoming Key Events

Thursday (June 2)

• All Day – OPEC Meetings
• 8:15 US ADP Nonfarm Employment Change. Estimate 177K
• 8:30 US Unemployment Claims. Estimate 270K
• 11:00 US Crude Oil Inventories

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, June 1, 2016

WTI/USD June 1 at 11:20 EDT

Open: 49.90 Low: 47.75 High: 49.08 Close: 48.30

WTI/USD Technical

• WTI/USD showed limited movement in the Asian and European sessions. The pair has posted gains in the North American session.
• There is resistance at 50.13 resistance line
• 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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