US Crude Edges Lower, Crude Inventories Drop and OPEC Huddles

US crude prices are steady on Thursday, trading at $48.39 in the North American session. Brent crude is trading at $49.06, for a premium of $0.67. In economic news, it’s a busy day. Crude Oil Inventories posted a decline of 1.7 million barrels, a smaller drop than expected. US ADP Nonfarm Payrolls came in at 173 thousand, very close to the forecast. Unemployment Claims were almost unchanged at 267 thousand, within expectations. On Friday, we’ll get a look at additional US employment data, highlighted by Nonfarm Employment Change.

Crude Oil Inventories posted another decline on Thursday, the third drop in the past four weeks. However, the reading of -1.7 million was considerably stronger than the forecast of -2.7 million. These declines have helped bolster the price of US crude, which punched above the $50 level early in the week and have not shown much movement. Meanwhile, OPEC members are meeting on Thursday in Vienna to discuss oil prices, but analysts don’t expect members to reach an agreement on a production cap or new targets, given the deep animosity between Iran and Saudi Arabia. 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. If the OPEC meeting defies expectations and concludes with an agreement, we could see volatility in the oil markets.

Is the Fed planning to raise interest rates? 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

Thursday (June 2)

• All Day – OPEC Meetings
• 7:30 US Challenger Job Cuts. Actual -26.5%. 
• 8:15 US ADP Nonfarm Employment Change. Estimate 174K. Actual 173K
• 8:30 US Unemployment Claims. Estimate 270K. Actual 267K
• 8:35 US FOMC Member Jerome Powell Speaks
• 10:30 US Natural Gas Storage. Estimate 83B. Actual 82B
• 11:00 US Crude Oil Inventories. Estimate -2.7M. Actual -1.4M

Upcoming Key Events

Friday (June 3)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 159K
• 8:30 US Unemployment Rate. Estimate 4.9%
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, June 2, 2016

WTI/USD June 2 at 11:00 EDT

Open: 48.85 Low: 47.96 High: 49.46 Close: 48.73

WTI/USD Technical

• WTI/USD showed limited movement in the Asian and European sessions. The pair has posted slight losses 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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