US Crude Edges Higher as Crude Inventories Sink

US crude oil has edged higher on Wednesday, as the commodity trades at $51.00 a barrel in the North American session. Brent crude is trading at $51.86, for a premium of $0.86. In the US, JOLTS Jobs Openings improved to 5.79 million, easily beating expectations. Crude Oil Inventories posted a strong decline of 3.2 million barrels, matching the forecast. On Thursday, the US releases Unemployment Claims.

Slowly but surely, US crude has being moving to higher levels. Crude pushed above the $51 level on Wednesday, its highest level since early July 2015. Crude Oil Inventories, which measures US crude stockpiles, posted a sharp drop of 3.2 million last week. This marked the fourth decline in the past five readings, and has helped stabilize the price of US crude in recent weeks. Brent prices have also remained strong, as Chinese oil imports have increased and production in Nigeria has been disrupted due to attacks by militants.

After several soft employment numbers, there was growing unease about the strength of the US labor market. On Friday, Nonfarm Payrolls plunged to a paltry 38 thousand, shocking the markets and sending the US dollar tumbling. On Monday, the Labor Market Conditions Index dropped 4.9 points, marking a fourth consecutive decline. This was followed by Revised Nonfarm Productivity, which dropped 0.6%. The markets were braced for a weaker reading from JOLTS Job Openings on Wednesday, but the indicator improved to 5.79 million, easily beating the forecast of 5.67 million. We’ll get a look at Unemployment Claims on Thursday, with the estimate standing at 269 thousand, little changed from the previous reading.

Federal Reserve Chair Janet Yellen delivered a closely-watched speech on Monday, but the markets were disappointed with her lack of specifics, and EUR/USD showed no movement. Speaking at the World Affairs Council in Philadelphia, Yellen said she remained optimistic about the US economy and hinted that the Fed would raise interest rates, but crucially, she gave no indication as to when that might occur. This omission was in sharp contrast to her remarks just over a week ago, when she declared that a hike would likely be appropriate “in the coming months”. Yellen was cautious in her tone on Monday, saying “[i]f incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective as I expect, further gradual increases in the Federal Funds Rate are likely to be appropriate”.  Yellen played down the dismal Nonfarm Payroll report, saying that the markets shouldn’t attach too much significance to one soft report. The markets had lowered expectations for a June rate hike after the dismal NFP report on Friday, and Yellen’s speech has all but priced a rate hike at next week’s Fed policy meeting. However, a rate increase in July or September remains on the table, and any decision by the Fed to raise or maintain rates will be data-dependent, particularly on inflation and employment data.

WTI/USD Fundamentals

Wednesday (June 8)

• 10:00 US JOLTS Job Openings. Estimate 5.67M. Actual 5.79M
• 10:30 US Crude Oil Inventories. Estimate -3.2M. Actual -3.2M
• 13:01 US 10-year Bond Auction

Upcoming Key Events

Thursday (June 9)

• 8:30 US Unemployment Claims. Estimate 269K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, June 8, 2016

WTI/USD June 8 at 11:50 EDT

Open: 50.40 Low: 50.33 High: 51.36 Close: 51.00

WTI/USD Technical

• WTI/USD was flat in the Asian session. The pair posted gains in the European session but has retracted in North American trade
•  50.13 remains fluid and is a weak support line. It could see further action in the North American session
• There is resistance at 53.50

Further levels in both directions:

• Below: 50.13, 46.69, 43.45, 40.00 and 37.75
• Above: 53.50, 56.79 and 60.68

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