Crude Oil Steady Ahead of Key Nonfarm Payrolls, OPEC Meeting

US Crude prices are steady on Friday, as the pair trades at $40.60 per barrel in the European session. We could see some volatility from oil during the day, as OPEC leaders are meeting in Vienna for a key meeting. The US releases a key Nonfarm Payrolls report which will have bearing on the Fed interest rate decision. There are two other US key releases – Unemployment Rate and Average Hourly Earnings.

With oil prices hovering close to their lowest levels since August, all eyes are on the OPEC meeting on Friday. Oil producers have shown little inclination to reduce their market share and cut back production, resulting in a huge global glut of oil that has led to a serious shortage of land-storage facilities, and many tankers cannot unload their cargo. If this situation continues, oil prices could head southwards. There has been a report that Saudi Arabia, the largest OPEC member, will agree to cut production levels by 1 million barrels a day if non-OPEC members such as Iran and Russia follow suit. Such a move could provide a respite for weak oil prices, but it is doubtful if the oil producers, which have traditionally squabbled about production levels, will be able to reach an agreement to trim supplies in an attempt to increase demand and raise prices.

All eyes are on US Nonfarm Payrolls, which will be released later on Friday. Recent employment numbers have been solid, as ADP Nonfarm Payrolls improved to 217 thousand, marking a five-month high. Unemployment Claims rose last week, but still met expectations. The upcoming Nonfarm Payroll report could play a critical in the Fed’s decision of whether to raise interest rates later this month. The Federal Reserve will obviously not confirm a widely-expected rate hike, but Fed chair Janet Yellen testified on Capitol Hill on Thursday, and signaled that a rate increase is likely in December, barring some unforeseen weak economic data before the rate decision on December 16. Earlier in the week, Yellen added that the Fed is satisfied with the progress shown by the US labor market. Persistently low inflation levels have hampered the recovery and are well below the Fed target of 2 percent, and is a key reason why the Fed did not raise rates earlier this year. However, Yellen stated that she expects inflation numbers to improve, so weak inflation may no longer be an impediment to an historic rate hike.

This week’s US PMI reports, key gauges of economic activity, failed to impress. On Tuesday, ISM Manufacturing PMI slipped to 48.6 points in November. This figure fell short of the estimate of 50.6 points, and marked the first contraction of the index since May 2013. Recent manufacturing releases were also soft, as the US manufacturing sector continues to struggle. There wasn’t any relief from ISM Non-Manufacturing PMI on Thursday, as the index slipped to 55.9 points, well short of the forecast of 58.1 points. This marked a six-week low for the indicator. The silver lining is that although the index took a hit in November, the reading was still above the 50 line, indicative of expansion.

WTI/USD Fundamentals

Friday (Dec.4)

• 13:30 US Average Hourly Earnings. Estimate 0.2%
• 13:30 US Nonfarm Employment Change. Estimate 201K
• 13:30 US Unemployment Rate. Estimate 5.0%
• 13:30 US Trade Balance. Estimate -40.6B

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Friday, December 5, 2015

WTI/USD December 5 at 11:50 GMT

WTI/USD 41.60 H: 41.73 L: 41.08

WTI/USD Technical

• 39.87 is providing support.
• 42.59 is an immediate resistance line.

Further levels in both directions:

• Below: 39.87, 37.75 and 35.09
• Above: 42.59, 44.30, 47.04 and 49.06

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