US Crude Oil Posts Gains as Crude Inventories Miss Expectations

US crude futures has moved higher on Wednesday, trading at $37.91 a barrel in the North American session. Brent crude futures are trading at $40.27, as Brent’s premium stands at $2.46. In economic news, it’s a busy day in the US, highlighted by the Federal Reserve rate announcement and policy statement. US consumer inflation indicators were mixed. CPI declined by 0.2%, matching the forecast. Core CPI looked stronger, posting a gain of 0.3%, edging above the estimate of 0.2%. Building Permits came in at 1.20 million, within expectations.

US crude has climbed close to the $38 level on Wednesday, erasing this week’s losses. Oil prices reacted negatively on Monday to an OPEC report, which downgraded its forecast for 2016, saying that demand will not be as high as previously expected, meaning that surplus is projected to be higher than previously forecast. US crude slipped below $36 this week, causing concern in the markets. The commodity has reversed directions on Wednesday, after an EIA inventory report showed that crude stockpiles rose 1.3 million, much lower than the forecast of 2.9 million. Oil prices were also boosted by a report that Qatar would host a meeting of oil producer nations in mid-April to discuss freezing outputs. Previous efforts at capping production have not succeeded, with producers unable to reach agreement. Iran is a monkey wrench in the equation, as the country recently tripled its production and is not interested in cutting back on output. The country was shut out of international markets until January, due to international sanctions, and is eager to regain its status as a major oil exporter.

Will the Federal Reserve press the rate trigger on Wednesday? Most experts are expecting the Fed to remain on the sidelines and not raise rates, given current economic conditions. Although the US economy continues to expand, growth has been softer in 2016 compared to the red-hot pace which marked the economy in the second half of 2015. The primary trouble spot in the economy is the inflation picture, as inflation levels remains very low, a result of weak global demand and low oil prices. Fed policymakers are divided on how to respond to persistently low inflation. Some FOMC members favor preempting inflation with a rate hike, while others feel that the economy is currently too fragile for such a move.

The markets are not anticipating any rate move at the upcoming Fed meeting, but there is intense interest in the Fed’s “dot plot” (a chart of rate hike expectations released each quarter). When the Fed raised interest rates in December, the dot plot called for four hikes in 2016 and projected rates would be between 1.25% and 1.50% by the end of 2016. Many experts have argued that the dot plot is not in sync with market projections of rate increases, and the December dot plot releases appears to bolster their argument. With the cooling off of the US economy early in 2016, the March dot plot is likely to project two or three rate moves in 2016, but many market players see the Fed opting not to raise rates again until next year.

WTI/USD Fundamentals

Wednesday (March 16)

  • 8:30 US Building Permits. Estimate 1.20M. Actual 1.17M
  • 8:30 US CPI. Estimate -0.2%. Actual -0.3%.
  • 8:30 US Core CPI. Estimate 0.2%. Actual 0.3%
  • 8:30 US Housing Starts. Estimate 1.15M. Actual 1.18M
  • 9:15 US Capacity Utilization Rate. Estimate 76.9%. Actual 76.7%
  • 9:15 US Industrial Production. Estimate -0.2%. Actual -0.5%
  • 10:30 US Crude Oil Inventories. Estimate 2.9M. Actual 1.3M
  • 14:00 FOMC Statement
  • 14:00 FOMC Federal Funds Rate
  • 14:30 FOMC Press Conference

Upcoming Key Events

Thursday (March 17)

  • 8:30 US Philly Fed Manufacturing Index. Estimate -1.4
  • 8:30 US Unemployment Claims. Estimate 267K

*Key events are in bold

*All release times are DST

WTI/USD for Wednesday, March 16, 2016

WTI/USD March 16 at 12:30 DST

Open: 36.91 Low: 36.34 High: 37.93 Close: 37.91

WTI/USD Technical

S3 S2 S1 R1 R2 R3
32.22 35.09 37.75 40.00 43.45 46.69
  • WTI/USD was flat in the Asian session. The pair showed choppiness in the European session and has posted gains in North American trade.
  • 37.75 remains busy and has switched to a support level, following gains by WTI/USD.
  • The round number of 40.00 is providing resistance

Further levels in both directions:

  • Below: 37.75, 35.09, 32.22 and 30.00
  • Above: 40.00, 43.45 and 46.69

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.