WTI/USD – US Crude Slides as Crude Inventory Decline Eases

After a quiet start to the Thursday session, US crude has posted sharp losses in North American trade. WTI/USD futures are trading at $46.17 per barrel in the North American session. Brent Crude is trading at $47.42, as the Brent premium stands at $1.25. On the release front, Crude Oil Inventories declined by 2.2 million barrels, missing the forecast of a 2.1 million decline. There was positive news on the employment front as ADP Nonfarm Employment Change and Unemployment Claims both beat expectations. On Friday, we’ll get a look at the all-important Nonfarm Employment Change, with the markets expecting a strong turnaround after the May shocker of just 38 thousand. The estimate stands at 174 thousand.

Crude Oil Inventories, which measure crude stockpiles on a weekly basis, continue to post declines. The indicator declined 2.2 million barrels last week, marking the seventh decline in the past eight weeks. However, this reading was an improvement compared to the previous reading of -4.1 million and very close to the estimate, so crude has responded with sharp losses in the North American session. Elsewhere, US employment numbers looked sharp. 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 Federal Reserve released the minutes of its June policy meeting on Wednesday. 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 Britain voted to leave the EU, which has caused turmoil in the markets and sent 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minutes indicated that Fed members projected two rate increases before the end of the year, but that forecast is likely out-of-date following the shock waves from Brexit. 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.

Fed Chair Janet Yellen and her colleagues continue to sound cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 26-27.

WTI/USD Fundamentals

Thursday (July 7)

• 7:30 US Challenger Job Cuts. Actual -14.1%
• 8:15 US ADP Nonfarm Employment Change. Estimate 158K. Actual 172K
• 8:30 US Unemployment Claims. Estimate 269K. Actual 254K
• 10:30 US Natural Gas Storage. Estimate 42B. Actual 39B
• 11:00 US Crude Oil Inventories. Estimate -2.1M. Actual -2.2M

Upcoming Key Events

Friday (July 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 174K
• 8:30 US Unemployment Rate. Estimate 4.8%

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, July 7, 2016

WTI/USD July 7 at 11:30 EDT

Open: 47.76 Low: 46.05 High: 48.25 Close: 46.17

WTI / USD Technical

• WTI/USD showed limited movement in the European and Asian sessions. The pair has posted sharp losses in the North American session
• 46.49 has switched to resistance following sharp losses by WTI/USD in the North American session
• 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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