WTI/USD – US Crude Below $46 After Sharp Drop, Nonfarm Payrolls Next

US crude prices have steadied on Friday, following sharp losses on Thursday. WTI/USD futures are trading at $45.55 per barrel. Brent crude is trading at $46.94, as the Brent premium has widened to $1.39. On the release front, employment data will be in the spotlight with three key events, highlighted by Nonfarm Employment Change.

An uneventful Thursday turned into a rout for oil prices, as US crude fell 3 percent in Thursday’s North American session. US crude reacted negatively to the EIA Crude Oil Inventories report, although the reading was close to the forecast. The indicator declined 2.2 million barrels last week, and this was much stronger than the API Crude Oil Stock report, which had forecast a decline of some 6.7 million barrels. The actual decline was much smaller than many market players had anticipated and this led to a sharp drop in crude prices on Thursday. We could see further volatility from crude on Friday, with the release of Nonfarm Payrolls, one of the most important economic indicators. A strong reading could see oil prices reverse directions and move upwards.

US employment numbers looked sharp on Thursday. ADP Nonfarm Employment Change was almost unchanged in June, with a reading of 172 thousand. This figure was well above the forecast of 158 thousand. This was followed by a solid unemployment claims release, as the indicator dropped to 254 thousand, marking an 11-week low. All eyes are now on the official Nonfarm Payrolls report which will be released on Friday. A strong release would confirm that the labor market is improving and job creation is gaining steam. The markets will also be keeping a close look at the unemployment rate and Average Hourly wages, which will be released later today.

There were no surprises in the Federal Reserve minutes, released earlier this week. In the June policy meeting, policymakers expressed concerns about a slowdown and hiring and the health of the US economy, and the underlying tone was one of prudence and caution. The June meeting took place just one week before the Brexit referendum, and in the minutes showed that Fed policymakers adopted a “wait and see” attitude about Brexit. The vote by Britain to leave the EU stunned the markets, causing turmoil in the markets and sending bond yields to record lows. The minutes indicated that Fed members projected two rate increases before the end of the year, but that forecast is likely out-of-date following the shock waves from the Brexit earthquake. 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. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase.

WTI/USD Fundamentals

Friday (July 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 175K
• 8:30 US Unemployment Rate. Estimate 4.8%
• 15:00 US Consumer Credit. Estimate 16.7B

*Key events are in bold

*All release times are EDT

WTI/USD for Friday, July 8, 2016

WTI/USD July 8 at 3:45 EDT

Open: 45.43 Low: 45.29 High: 45.74 Close: 45.55

WTI / USD Technical

• WTI/USD has been flat in the Asian and European sessions
• There is resistance at 46.49
• 43.45 is providing support

Further levels in both directions:

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

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