WTI/USD – US Crude Steadies after Sharp Gains on OPEC Deal

After sharp gains on Wednesday, US crude has steadied in the Thursday session. In North American trade, WTI/USD futures are trading at $47.20 per barrel. Brent futures are trading at $48.59, as the Brent premium has widened to $1.39. On the release front, Final GDP gained 1.4%, edging above the forecast of 1.3%. Unemployment Claims edged up to 254 thousand, beating the forecast of 260 thousand. Pending Home Sales declined 2.4%, much weaker than expectations.

Oil prices surged on Wednesday, as OPEC members announced that they had reached agreement to cut oil production, marking the first production cut since 2008. Under the agreement, production would be reduced from the current level of 33 million barrels per day to a range of 32.5 million-33 million barrels. However, OPEC added that the deal would not be finalized until November. Analysts remain skeptical that OPEC members will abide by their commitments until November, given that previous production quotas have been blatantly disregarded. Given this skepticism, Goldman Sachs has not changed its forecast for the end of 2016, which projects US crude at $43 a barrel. Still, the OPEC announcement sent US crude surging some 4.5 percent and touching 3-week highs. If there are signs that the agreement will not be finalized in November, we can expect oil prices to drop sharply. In the US, Crude Oil Inventories posted a fourth straight decline, continuing to confound the markets, which had predicted a surplus each time.

The US economy expanded 1.4% in the second quarter, revised from the preliminary estimate of 1.1%. Consumer spending has been strong, making up for sluggish business investment and weaker demand for US exports. The US consumer is optimistic about the economy, as underscored by recent CB consumer confidence surveys, which have been above the 100-level for two months running. On the labor front, unemployment claims came in at 254 thousand, marking the eighth straight week that jobless claims have come in below the forecast. On Friday, the important UoM Consumer Sentiment will be released, with the markets expecting a strong reading of 90.1 points.

With the Federal Reserve staying on the sidelines in September and the November meeting taking place just before the US election, the markets have circled December as the next date for a possible rate hike. Last week’s policy statement was generally upbeat and broadly hinted at a December rate hike. However, the markets can be forgiven for remaining somewhat skeptical, as the Fed has previously talked about a strong US economy and failed to follow up with a rate hike. Currently, a rate hike is priced in at 48 percent, but plenty can happen before the December policy meeting. The Fed has been sending out mixed messages about a rate hike, and this was underscored in the September decision, in which three FOMC members dissented and voted for an immediate hike. This lack of clarity has been disconcerting to the markets, which are always allergic to uncertainty. The markets haven’t forgotten that last December, the Fed projected a series of hikes in 2016, and has yet to deliver even one hike this year. As we approach December, the Fed will need to send out a more uniform message in order to restore its credibility with the markets.

WTI/USD Fundamentals

Thursday (September 29)

• 8:30 US Final GDP. Estimate 1.3%. Actual 1.4%
• 8:30 US Unemployment Claims. Estimate 260K. Actual 254K
• 8:30 US Final GDP Price Index. Estimate 2.3%. Actual 2.3%
• 8:30 US Goods Trade Balance. Estimate -62.6B. Actual -58.4B
• 10:00 US FOMC Member Jerome Powell Speaks
• 10:00 US Pending Home Sales. Estimate -0.1%. Actual -2.4%
• 10:30 US Natural Gas Storage. Estimate 57B
• 16:00 US Federal Chair Janet Yellen Speaks

Friday (September 30)

• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.1

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, September 29, 2016

WTI/USD September 29 at 10:30 EDT

Open: 47.23 High: 47.42 Low: 46.60 Close: 47.20

WTI USD Technical

• WTI/USD was flat in the Asian session. In European trade, the pair posted losses but recovered. WTI/USD is showing limited movement in North American trade
• 46.69 switched to a support role following sharp gains by WTI/USD on Wednesday
• There is resistance at 50.13

Further levels in both directions:

• Below: 46.69, 43.45, 38.38 and 32.33
• Above: 50.13, 53.50 and 59.69

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