US Crude Slips Below $40 on Surplus Projections

US crude futures have lost ground on Thursday, continuing the downward trend which marked Wednesday’s session. US Crude is trading at $38.82 a barrel in the North American session. Brent crude futures are trading at $39.82, for a premium of $1.00. In economic news, Unemployment Claims came in at 267 thousand, within expectations. However, durable goods reports pointed to declines, disappointing the markets. On Friday, the US releases Final GDP, a key indicator which could move the markets. The forecast stands at 1.0%.

The Energy Information Administration (EIA) released its weekly crude oil inventory report on Wednesday, and the size of the surplus surprised the markets and sent US crude prices downwards. The figure of 9.4 million marked a 3-month high, and underscores a huge oversupply of oil worldwide. Market players are predicting that the surplus will last at least two more years, and Phillip Futures analyst Daniel Ang said in a note on Wednesday that the current uptrend is unsustainable due to oversupply.

The Federal Reserve policy statement last week appeared to rule out any imminent rate hikes, but recent hawkish statements by Federal Reserve officials have surprised the markets and sent the US dollar broadly higher. On Monday, John Williams, president of the San Francisco Fed, said that the Fed could raise rates in April and June, if economic conditions improve. Although the dot plot (an FOMC projection of rate hikes) was lowered at the March meeting, he insisted that the Fed had not changed its path of rate hikes. His comments were echoed by Atlanta Fed Dennis Lockhart, who also said that an April rate move was a clear possibility. Lockhart noted that the US economy was holding up well, despite weak global conditions. Lockart said that the economy was close to full employment and the Fed’s target of 2 percent inflation was attainable. There was further support for rate hikes from two other Fed presidents, Patrick Harker and James Bullard. Harker said that given the strong economy, the Fed should consider raising interest rates as early as the April meeting, and added that he favored at least three rate hikes during the year. On Wednesday, Bullard said that with the US unemployment rate at very low levels, the Fed could be forced to raise rates sooner rather than later. Given these statements, traders should treat an April move by the Fed as a reasonable possibility, with US employment and inflation numbers having a huge say on the Fed’s decision.

WTI/USD Fundamentals

Thursday (March 24)

• 8:15 US FOMC Member James Bullard Speaks
• 8:30 US Core Durable Goods Orders. Estimate -0.2%. Actual -1.0%
• 8:30 US Unemployment Claims. Estimate 267K. Actual 265K
• 8:30 US Durable Goods Orders. Estimate -3.0%. Actual -2.8%
• 9:45 US Flash Services PMI. Estimate 51.3. Actual 51.0
• 10:30 US Natural Gas Storage. Estimate 20B. Actual 15B

Upcoming Key Events

Friday (March 25)

• 12:30 US Final GDP. Estimate 1.0%

*Key events are in bold

*All release times are DST

WTI/USD for Thursday, March 24, 2016

WTI/USD March 24 at 11:15 DST

Open: 39.56 Low: 38.34 High: 39.79 Close: 38.82

WTI/USD Technical

• WTI/USD was flat in the Asian session and posted losses in European trade. The pair has leveled off in the North American session.
• 37.75 is providing support
• The pair broke below $40, which has switched to a resistance line.

Further levels in both directions:

• Below: 37.75, 35.09 and 32.22
• Above: 40.00, 43.45, 46.69 and 50.89

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.