Crude Oil Steady at $35

WTI Crude is uneventful on Monday, as crude futures trade at $35.64 per barrel in the North American session. There are no US releases on Monday. Given the lack of economic indicators, we’re unlikely to see much activity from the pair during the day. The markets are now focused on US Final GDP, which will be released on Tuesday.

Oil continues to struggle, with prices close to their lowest levels since February 2009. US crude futures have plunged a whopping 25 percent since the start of November, as oil supplies continue to far exceed demand, which has fallen sharply due to weak global economic conditions. Oil storage facilities on land are full, leaving dozens of tankers stuck at sea, laden with oil and unable to discharge their cargo. The recent OPEC meeting, in which members couldn’t agree on any cuts and failed to even issue a production target, has only exacerbated matters. With Russia continuing to produce at high levels and Iran waiting in the wings to export its oil, prices could continue to head south as we head into 2016, with some analysts predicting prices below $30 a barrel. Meanwhile, the well-respected Moody’s rate agency sharply lowered its oil price projections last week, reflecting the huge disparity between supply of and demand for oil. The bottom line? There isn’t much of a case to make for buying oil at present, as oil prices could continue to head south.

In a historic move, the Federal Reserve raised interest rates by 0.25 percent last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. Janet Yellen and her colleagues at the Fed deserve full marks for putting into play a carefully-crafted strategy, sending a steady of stream of signals to the markets that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years.

The rate hike of just 0.25 percent is expected to have limited economic impact, but the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy of effective communication with the markets contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in the euro surging by as much as 500 points before it leveled off.

WTI/USD Fundamentals

Monday (Dec. 21)

* There are no US releases on Monday

Upcoming Key Events

Tuesday (Dec. 22)

• 13:30 US Final GDP. Estimate 1.9%

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Monday, December 21, 2015

WTI/USD December 21 at 17:35 GMT

WTI/USD  35.64 H: 36.06 L: 35.35

WTI/USD Technical

• Crude has shown marginal movement during the day.
• 35.09 remains active and has switched to a support role. It is a weak line and could break during the North American session.
• There is resistance at 37.75

Further levels in both directions:

• Below: 35.09, 32.22, 30.00 and 27.60
• Above: 37.75, 39.87 and 42.59

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