US Crude Lower as Crude Inventories Beats Estimate

US crude futures have posted small gains on Wednesday, reversing the upward trend which marked the Tuesday session. US Crude is trading at $44.09 in the North American session. Brent Crude is trading at $45.93, as the Brent premium stands at $1.84. On the release front, today’s highlight is the Federal Reserve’s monthly policy statement. The markets are not expecting any change to the current benchmark interest rate of 0.25%. In other news, Crude Oil Inventories climbed 2.0 million barrels, above the forecast of 1.4 million. Pending Home Sales posted a strong gain of 1.7%, much higher than the estimate of 0.3%. On Thursday, the US releases two key events – Advance GDP and Unemployment Claims.

US crude has shown strong volatility in the past week, as the commodity has posted sharp drops but managed to recover. On Tuesday, crude briefly dropped over $6, representing a 15% plunge. However, crude rebounded and closed the Tuesday session with gains. US Crude Inventories climbed 2.0 million barrels last week, above the forecast of 1.4 million. US crude has responded with slight losses, but still remains at relatively high levels, trading just above $44.

All eyes are on the Federal Reserve, which will set the April benchmark rate and release a policy statement later on Wednesday. With the Fed widely expected to maintain interest rates at the current level of 0.25%, the markets will be carefully monitoring the tone of the policy statement. Janet Yellen has sounded cautious about the health of the US economy, and if the Fed continues on this path and sends out a dovish message, the dollar could soften against its major rivals.

The collapse in oil prices has, not surprisingly, meant huge losses for oil producers. The six Middle Eastern Gulf states (Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Oman and Kuwait), whose economies are almost entirely dependent on oil revenue, have been hit particularly hard, according to an IMF report. These countries lost $390 billion in revenue due to weak oil prices in 2015 compared to a year earlier, and that figure could jump to between $490 billion and $540 billion compared to 2o14. This has resulted in downgraded growth forecasts and growing budget deficits for countries that until now had little incentive to diversify. With oil prices unlikely to rebound to high levels anytime soon, the plunge in crude prices is a game-changer, as the Gulf producers and other oil exporting countries are scrambling to find other ways to raise revenue and keep their economies afloat as revenue from oil has nosedived.

WTI/USD Fundamentals

Wednesday (April 27)

• 8:30 US Goods Trade Balance. Estimate -62.5B. Actual -56.9B
• 10:00 US Pending Home Sales. Estimate 0.3%. Actual 1.4%
• 10:30 US Crude Oil Inventories. Estimate 1.4M. Actual 2.0M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.50%

Thursday (April 28)

• 8:30 US Advance GDP. Estimate 0.7%.
• 8:30 US Unemployment Claims. Estimate 258K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, April 27, 2016

WTI/USD April 27 at 11:30 EDT

Open: 44.53 Low: 43.77 High: 45.17 Close: 44.09

WTI/USD Technical

• WTI/USD showed limited movement in the Asian and European sessions. The pair has posted slight losses in North American trade
• 43.45 is providing weak support
• There is resistance at 46.69

Further levels in both directions:

• Below: 43.45, 40.00, 37.75 and 35.09
• Above: 46.69, 50.13 and 51.59

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