WTI/USD – US Crude Slides Below $45 on Soft Crude Inventories Report

US crude prices have reversed directions and dropped sharply on Wednesday, wiping out Tuesday’s gains. In the North American session, WTI/USD futures are trading at $44.82 per barrel. Brent crude is trading at $46.23, as the Brent premium stands at $1.41. On the release front, Crude Oil Inventories came in at -2.5 million, weaker than the estimate of  -2.3 million. US Import Prices posted a weak gain of 0.2%, well below expectations. On Thursday, the US will release two key indicators – PPI and Unemployment Claims.

US Crude Oil Inventories continues to post larger declines than expected by the markets, and this has blunted recent attempts by crude to move higher. Crude prices have sagged 3.4 percent on Wednesday as crude stockpiles fell 2.5 million, which was a larger decline than expected. Crude prices continue to show volatility this week. On Tuesday, the commodity sparkled, gaining 4.7 percent after an OPEC monthly report projected that demand for oil would increase as the oil glut is expected to fade. The report said that US production would continue to decline in 2017, while developing economies such as India and China would increase their demand for crude. At the same time, oil drilling in the US is on the increase, and this could send oil prices to lower levels.

Back in December of last year, when the Federal Reserve raised interest rates for the first time in nine years, there were high hopes that the Fed would continue with a series of hikes in 2016. Fast forward to July, and the Fed is yet to make a move this year, as the US economy has not matched its impressive growth rates in 2015. Last week’s Fed minutes reinforced the perception that the Fed is unlikely to tighten policy anytime soon, as the tentative Fed remains cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike this year will increase.

WTI/USD Fundamentals

Wednesday (July 13)

• 8:30 US Import Prices. Estimate 0.6%. Actual 0.2%
• 10:30 US Crude Oil Inventories. Estimate -2.3M. Actual -2.5M
• 13:01 US 30-year Bond Auction
• 14:00 US Beige Book
• 14:00 US Federal Budget Balance. Estimate 24.2B

Upcoming Key Events

Thursday (July 14)

• 8:30 US PPI. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 263K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, July 13, 2016

WTI/USD July 13 at 11:35 EDT

Open: 46.45 High: 46.68 Low: 44.79 Close: 44.82

WTI / USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted sharp losses in North American trade
• 46.69 is providing resistance
• 43.45 is a weak support line. It is under pressure in the North American session

Further levels in both directions:

• Below: 43.45, 39.32 and 35.25
• Above: 46.69, 50.13 and 53.50

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.