US Crude Edges Lower, Brexit Vote Looms

WTI crude has posted small losses on Wednesday, trading at $49.55 in the North American session. Brent crude is trading just above the $50 level, at $50.20, for a premium of $0.65. On the release front, Existing Home Sales improved to 5.53 million, matching the estimate. Crude Oil Inventories posted another decline, coming in at -0.9 million. On Thursday, the US releases unemployment claims.

US crude continues to show volatility ahead of the Brexit referendum, as the commodity dropped sharply on Tuesday before recovering. With just one day left until the Brexit referendum vote in the UK, the campaign between the “Leave” and “Remain” camps is going down to the wire. The stakes are tremendous, as the UK economy of GBP 2.9 trillion is the fifth largest in the world, and number two in Europe, after Germany. Polls continue to predict a very close vote, but market sentiment is leading towards the UK staying within the EU. This sentiment has boosted the British pound in recent days against the dollar and the euro. Prime Minister David Cameron and other prominent British personalities have warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped into voter dissatisfaction with Brussels, particularly concerning immigration. The “Leave” camp also claims that EU over-regulation has stifled British businesses, and point to countries such as Switzerland that have close economic relations with the EU but are not part of the bloc. Still, leaving the comfort zone of the EU would be a journey into the unknown, and analysts predict that if the UK exits the EU, the pound could dive by as much as 10 percent.

Janet Yellen appeared before a Senate finance committee on Tuesday, and her testimony was cautious and tentative. Yellen acknowledged that the US economy could be stronger, saying that “[c]onsiderable uncertainty about the economic outlook remains”. As expected, Yellen provided no hints with regard to the timing of a rate hike, leaving the markets doubtful that we’ll see a rate hike in July. Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending. Yellen continues her testimony on Wednesday before a House financial committee.

WTI/USD Fundamentals

Wednesday (June 22)

• 10:00 Federal Reserve Chair Janet Yellen Testifies
• 10:00 US Existing Home Sales. Estimate 5.53M. Actual 5.53M
• 10:30 US Crude Oil Inventories. Estimate -1.3M. Actual -0.9M

Upcoming Key Events

Thursday (June 23)

• 8:30 US Unemployment Claims. Estimate 271K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, June 22, 2016

WTI/USD June 22 at 11:30 EDT

Open: 50.27 Low: 49.44 High: 50.53 Close: 49.55

WTI/USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted losses in North American trade.
• 46.49 is providing support
• There is weak resistance at 50.13

Further levels in both directions:

• Below: 46.49, 43.45, 39.32 and 35.25
• Above: 50.13, 53.50 and 56.79

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