Crude Dips Below $42 as Crude Inventories Rise

US crude continues to lose ground this week. In Wednesday’s North American session, WTI/USD futures are trading at $42.25. Brent crude is trading at $43.85, as the Brent premium stands at $1.60. On the release front, US economic indicators were dismal. Core Durable Goods Orders and Durable Goods Orders both posted declines. As well, Pending Homes Sales posted a small gain of 0.2%, well below expectations. Later in the day, the Federal Reserve will conclude its meeting and issue a policy statement. On Thursday, the US will release Unemployment Claims.

Crude prices have slipped on Wednesday, as the commodity reacted negatively to a surprise rise in Crude Oil Inventories. The indicator pointed to a gain of 1.7 million barrels, compared to a forecast of -2.1 million. This reading underscores the continuing oversupply of crude on world markets. Drilling activity in the US is on the upswing, as the number of US drilling rigs continues to increase. This is raising concerns that higher production levels in the US will exacerbate supply levels and push down crude prices below the symbolic $40, which has held firm since mid-April.

US numbers have been solid in recent weeks, so Wednesday’s soft durable goods reports caught the markets by surprise. Core Durable Goods Orders came in at -0.5%, well short of the forecast of 0.3%. There was no relief from Durable Goods Orders, which posted a sharp gain of 4.0%, compared to a forecast of -1.1%. This marked the weakest reading of 2016. There was more disappointing news on the housing front, as Pending Home Sales gained 0.2%, well short of the estimate of 1.9%.

The Federal Reserve will take center stage later on Wednesday. The Fed is not expected to raise the current benchmark rate of 0.25%, so the markets will be paying close attention to the policy statement, looking for clues about a possible hike later in the year. The markets have priced in a 51% chance of a rate hike before the end of the year, but that could quickly dip if the Fed sends a dovish message to the markets. The previous policy statement preceded the Brexit vote by just a week, so it will be interesting to see what Fed policymakers have to say about the British decision to leave the European Union. Solid US numbers in the past few weeks has fueled speculation about a possible rate hike, although it’s extremely unlikely the Fed will raise rates at the Wednesday meeting. Although the US economy is in good shape, the fly in the ointment is inflation, which remains stuck at low levels, well short of the Fed’s target of around 2 percent. Fed policymakers will be hesitant to raise rates if inflation is not projected to point upwards.

WTI/USD Fundamentals

Wednesday (July 27)

  • 8:30 US Core Durable Goods Orders. Estimate 0.3%. Actual -0.5%
  • 8:30 US Durable Goods Orders. Estimate -1.1%. Actual -4.0%
  • 10:00 US Pending Home Sales .Estimate 1.9%
  • 10:30 US Crude Oil Inventories. Estimate -2.1M. Actual +1.7M
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (July 28)

  • 8:30 US Unemployment Claims. Estimate 261K

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, July 27, 2016

WTI/USD July 27 at 11:30 EDT

Open: 42.69 High: 43.20 Low: 41.94 Close: 42.25

WTI USD Technical

S3 S2 S1 R1 R2 R3
30.55 35.25 39.32 43.45 46.69 50.13
  • WTI/USD was flat in the Asian and European sessions. The pair has posted sharp losses in North American trade
  • 39.32 is providing support
  • 43.45 is a weak resistance line

Further levels in both directions:

  • Below: 39.32, 35.25 and 30.55
  • Above: 43.45, 46.69, 50.13 and 53.50

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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.