WTI/USD – US Crude Dips to July Lows on Brexit Jitters

US Crude is under downward pressure on Wednesday, following sharp losses in the Tuesday session. WTI/USD futures are trading at $46.66 per barrel in the North American session. Brent Crude is trading at $47.94, as Brent trades at a premium of $1.28. On the release front, ISM Non-Manufacturing PMI was unexpectedly strong, climbing to 56.5 points. This marked the strongest gain in eight months. The US trade deficit widened in May, buoyed by rising oil prices. Later in the day, the Federal Reserve releases the minutes of its June policy meeting. On Thursday, employment data will be in focus, with the release of ADP Nonfarm Employment Change and Unemployment Claims.

In the aftermath of the Brexit vote, jittery investors are flocking to safe-haven assets like gold and the Japanese yen, at the expense of assets which carry more risk, such as oil. US crude slumped 3.7 percent on Tuesday and has dropped below $46 on Wednesday, its lowest level this month. We could see further movement on Thursday, with the release of US Crude Oil Inventories. The indicator has pointed to a decline in stockpiles for three straight weeks, and another drop is forecast in the upcoming release, with an estimate of -2.5 million.

The Brexit vote in late June continues to preoccupy the markets, and the Federal Reserve and US monetary policy have understandably taken a back seat. The Fed will be back on center stage later on Wednesday, as the Fed releases the minutes of its June policy meeting, which was held just one week before the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 27.

Britain may have voted “Out”, but what happens next? There is no timetable as to when the exit from the European Union will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and the lack of clarity regarding Britain’s exit from the EU will likely translate into continuing volatility in the currency markets and commodity markets.

WTI/USD Fundamentals

Wednesday (July 6)

• 8:30 US Trade Balance. Estimate -40.0B. Actual -41.1B
• 9:00 US FOMC Member Daniel Tarullo Speaks
• 9:45 US Final Services PMI. Estimate 51.5. Actual 51.4
• 10:00 US ISM Non-Manufacturing PMI. Estimate 53.3. Actual 56.5
• 14:00 US FOMC Meeting Minutes

Updated Key Events

Thursday (July 7)

• 8:15 US ADP Nonfarm Employment Change. Estimate 158K
• 8:30 US Unemployment Claims. Estimate 269K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, July 6, 2016

WTI/USD July 6 at 12:00 EDT

Open: 46.72 Low: 45.93 High: 46.91 Close: 46.66

WTI / USD Technical

• WTI/USD has been choppy in the Wednesday session
• 46.49 was tested earlier in support and could break during the North American session
• There is 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

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.