Oil Unchanged, Crude Oil Inventories Posts Sharp Decline

US crude has inched higher on Wednesday, following gains which marked the Tuesday session. Crude is trading at $49.44 in the North American session, its highest level since October. Brent crude is trading at $49.60, as the Brent premium is a negligible $0.16. On the release front, Goods Trade Balance beat the estimate. Crude Oil Inventories surprised the markets with a decline of -4.2 million barrels, compared to the forecast of -1.2 million. It marked the indicator’s sharpest decline in seven weeks. On Thursday, the US releases unemployment claims and durable goods orders.

US housing reports continue to show impressive numbers. New Home Sales surged in April, with an excellent reading of 619 thousand, compared to 511 thousand a month earlier. This figure crushed the estimate of 521 thousand and marked an 8-year high. Last week, Existing Home Sales posted a second straight gain, improving to 5.45 million. This was above the forecast of 5.40 million. The news was not as good from the manufacturing front, as the Richmond Manufacturing Index came in at -1 point, surprising the markets which had expected a strong gain of 9 points. This weak reading follows the Philly Fed Manufacturing Index, which continues to struggle. The indicator posted a decline of 1.8 points, well short of the estimate of a 3.2 point gain. We’ll get another look at key manufacturing data on Thursday, with the release of durable goods reports.

Will the Federal Reserve make a move in June? Last week’s Federal Reserve’s minutes were more hawkish than expected, and this resulted in strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. The Fed is unlikely to make a move if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

WTI/USD Fundamentals

Wednesday (May 25)

• 8:30 US Goods Trade Balance. Estimate -60.1B. Actual -57.5B
• 9:00 US HPI. Estimate 0.4%. Actual 0.7%
• 9:45 US Flash Services PMI. Estimate 53.1. Actual 51.2
• 10:30 US Crude Oil Inventories. Estimate -1.7M. Actual -4.2M

Thursday (May 26)

• 8:30 US Core Durable Goods Orders. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 275K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, May 25, 2016

WTI/USD May 25 at 10:25 EDT

Open: 48.09 Low: 47.65 High: 48.93 Close: 48.67

WTI/USD Technical

• WTI/USD was flat in the Asian session. The pair has posted small losses in the European session but has recovered and continues to move upwards in North American trade
• There is resistance at 50.13
• 46.69 is providing support

Further levels in both directions:

• Below: 46.69, 43.45, 40.00 and 37.75
• Above: 50.13, 53.50 and 56.79

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