Crude Oil Remains Under Pressure at $30

US Crude is steady on Wednesday as February futures are trading at $30.45 a barrel in the North American session. On the release front, Crude Oil Inventories posted a small surplus of 0.2 million, well below expectations. The next major release is Unemployment Claims, which will be released on Thursday.

Crude oil remains under pressure, as the commodity struggles at lows not seen since December 2003. Crude dipped below the symbolic level of $30 on Tuesday, sending shockwaves on global markets. The EIA weekly crude inventory report helped oil stabilize on Wednesday, as inventories were up 0.2 million, well below the forecast of 1.9 million. Still, total US crude inventories remain at all-time high levels, underscoring the huge glut of oil which continues to weigh on the price of crude. Crude has been hammered by the slowdown in China, the world’s second largest consumer of oil after the US. The New Year has started on ominous note, with the meltdown in the Chinese stock market and devaluation of the yuan exacerbating crude oil’s woes. Will the spiral continue? Experts such as Citigroup’s Ed Morse has stated that the plunge could continue, adding that US oil prices could drop as low as $20 a barrel. Adding to crude oil’s woes is the sharp rise of the US dollar against rival currencies. In a report published earlier in the week, Stanley Morgan stated that a 5 percent increase in the value of the dollar against a basket of currencies could push the price of oil down from 10-25 percent, which translates to $8 per barrel.

Recent US employment numbers have been impressive, underscoring a robust US labor market. On Tuesday, JOLTS Job Openings improved to 5.43 million, beating the estimate of 5.41 million and above the previous reading of 5.38 million. Late last week, Nonfarm Employment Change surged to 292 thousand, crushing the estimate of 203 thousand. This was the strongest reading in 10 months. The unemployment rate remained unchanged at 5.0%, within the Federal Reserve’s definition of “full employment”. One area of concern in the employment picture is that of wage growth, which has not kept up with the strong improvement in payrolls. Even if the US economy is technically at “full employment”, slack remains in the labor market, meaning that employers are not under any pressure to raise wages. This was underscored by the Average Hourly Earnings in December, which posted a flat reading of 0.0%, short of the forecast of 0.2%. This key event is a leading indicator of consumer inflation, meaning that wages must increase before consumers will spend more, thus leading to more inflation. The Fed has hinted that the December rate is the first of a series of incremental moves in 2016, and inflation levels will play an important role in any decision to raise rates.

WTI/USD Fundamentals

Wednesday (Jan. 13)

• 10:30 US Crude Oil Inventories. Estimate 1.9M
• 13:01 US 10-year Bond Auction
• 14:00 US Beige Book
• 14:00 US Federal Budget Balance. Estimate -2.7B

Upcoming Key Events

Thursday (Jan. 14)

• 8:30 US Unemployment Claims. Estimate 275K

*Key releases are highlighted in bold

*All release times are EST

WTI/USD for Wednesday, January 13, 2016

WTI/USD January 13 at 9:10 GMT

WTI/USD  Open: 30.69 Low: 30.11 High: 31.70 Close: 30.45

WTI/USD Technical

• WTI/USD was flat in the Asian session. The pair moved higher in the European session but has given up these gains North American trade.
• The round number of 30.00 remains a weak support level and could be tested during the North American session
• There is resistance at 32.22

Further levels in both directions:

• Below: 30.00, 26.64 and 22.88
• Above: 32.22, 35.09, 37.75 and 39.87

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