US Crude Dips, Markets Eye Crude Inventories

US crude futures have posted slight losses on Tuesday, continuing the downward trend which marked the Monday session. US Crude is trading at $43.66 in the North American session. Brent crude is trading at $44.80, as the Brent premium stands at $1.14. On the release front, IBD/TIPP Economic Optimism improved to 48.7 points, but this still indicates pessimism. There are no major US releases on Tuesday. We’ll get a look at two key indicators on Wednesday – ADP Nonfarm Employment Change and the ISM Non-Manufacturing PMI.

After posting gains last week, US crude has sharply reversed directions. Crude has slipped 5.5 percent this week, dropping below the $44 level for the first time in a week. The worldwide glut of oil continues to weigh on oil prices, despite some recent price movement upwards. US Crude Inventories will be released on Wednesday, and a higher surplus than expected could see crude prices continue to drop.

The US manufacturing sector remains a trouble spot in a generally strong US economy, as weak global demand for US-made goods has taken its toll on the industry. On Monday, US ISM Manufacturing PMI, a key gauge of manufacturing output, missed expectations. The index dipped to 50.8 points, shy of the estimate of 51.6 points. This reading just above the 50-point line points to near stagnation in the manufacturing sector. As well, Final Manufacturing PMI and Construction Prices both missed expectations, but ISM Manufacturing Prices easily beat the forecast. Last week, Core Durable Goods dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%.

The first quarter of 2016 has been marked by shaky global markets and a sharp drop in oil prices, so slower growth for the US economy was not unexpected. GDP climbed 0.5% in the first quarter, shy of the estimate of 0.7%. This was considerably lower than the 1.4% gain in the fourth quarter of 2015, and marked the weakest quarter of growth in two years. Although economic growth remains moderate, the lukewarm reading will not help the cause of Fed policymakers who favor a rate hike, especially with inflation at low levels. The markets, which had not expected any moves from the Fed in April, are keeping a close eye on key numbers and looking for clues as to whether the Fed will raise rates at its June policy meeting. The April policy statement sounded cautiously optimistic about the US economy, leaving the door open regarding a rate hike in June.

WTI/USD Fundamentals

Tuesday (May 3)

• 10:00 US IBD/TIPP Economic Optimism. Estimate 46.6. Actual 48.7
• 10:30 US FOMC Member Loretta Mester Speaks
• All Day – US Total Vehicle Sales. Estimate 17.3M

Upcoming Key Events

Wednesday (May 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 205K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 54.9

*Key events are in bold

*All release times are EDT

WTI/USD for Tuesday, May 3, 2016

WTI/USD May 3 at 11:10 EDT

Open: 44.75 Low: 43.37 High: 45.34 Close: 43.66

WTI/USD Technical

• WTI/USD showed limited movement in the Asian session. The pair has posted losses in the European and North American sessions
• 43.45 is providing weak support. This line was tested earlier on Tuesday and could break in the North American session
• 46.69 has strengthened in resistance as WTI/USD continues to lose ground

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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