WTI/USD – US Crude Unchanged at $52

US crude is unchanged in the Monday session. In North American trade, WTI/USD futures are trading at $52.00. Brent crude futures are trading at $54.80, as the Brent premium stands at $2.80. On the release front, there are no major US events on the schedule. Flash Services PMI slipped to 53.4, short of the forecast of 55.2. This points to weaker growth in the services sector than expected. Federal Reserve Chair Janet Yellen will deliver remarks at an event in Baltimore.

US crude prices slipped 4.3% last week, with much of the decline attributable to the Federal Reserve’s quarter-point hike, which brought rates to 0.50%. Although the rate move was widely expected and priced in by the markets at close to 100%, the markets reacted strongly to the momentous event. The rate hike marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year”. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimate. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he plans to increase government spending and cut taxes. If Trump’s economic policies heat up the economy and boost inflation, we could see a number of rate hikes in 2017.

With much fanfare, OPEC and other oil exporters reached a deal on production cuts, with the goal of stabilizing oil prices. The focus will now shift to the tricky issue of compliance. Will oil exporters  honor their commitments? Last week, OPEC warned that the oil surplus could actually grow in 2017 if producers don’t abide by the agreement and curb their output. OPEC production in November was the highest since at least 2008, as members have ratcheted up production in order to grab a bigger piece of the oil market pie. If the markets “smell a rat” and believe that compliance is lacking, crude prices could quickly head lower. However, even if the agreements are kept to the letter, it’s unlikely that oil prices will skyrocket. Oil exporters will likely target a price of about $60, since prices above that level would encourage US shale producers to enter the market, which would increase global oil supplies and lower prices.

WTI/USD Fundamentals

Monday (December 19)

• 9:45 US Flash Services PMI. Estimate 55.2. Actual 53.4
• 18:30 Federal Reserve Chair Janet Yellen Speech

*All release times are EST

*Key events are in bold

WTI/USD for Monday, December 19, 2016

WTI/USD December 19 at 11:30 EST

Open: 52.10 High: 52.55 Low: 51.53 Close: 51.73

WTI USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted small losses in North American trade
• 46.54 is providing support
• 52.22 is a weak resistance line

Further levels in both directions:

• Below: 46.54, 40.57 and 33.22
• Above: 52.22, 58.32, 65.05 and 72.99

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