US crude has edged lower in the Thursday session. In North American trade, US crude futures are trading at $52.95. Brent crude futures are trading at $56.22, as the Brent premium stands at $3.27. In the US, Crude Oil Inventories dropped 7.1 million barrels, marking the largest decline since September. On the employment front, ADP Nonfarm Employment Change disappointed with a reading of 153 thousand, well off the forecast of 171 thousand. There was better news from unemployment claims, which dropped to a 7-week low at 235 thousand. The ISM Non-Manufacturing PMI improved to 57.2, its highest level since October 2015. US employment numbers will be in the spotlight on Friday, with three releases – Nonfarm Payrolls, Average Hourly Earnings and the Unemployment Rate.
The Federal Reserve was on center stage on Wednesday, as the Fed released the minutes of its policy meeting in December. At the meeting, the Fed raised rates by a quarter point for the only time in 2016. The minutes indicated that FOMC members are concerned about higher inflation levels, given the “prospects for more expansionary fiscal policies in the coming years”. This is a clear reference to president-elect Trump’s plans to increase fiscal spending and cut taxes, which would likely result in higher inflation, something the Fed hasn’t had to deal with for years. Still, policymakers appear unchanged in their view that gradual rate hikes remains an appropriate monetary policy. The Fed members acknowledged that there is “considerable uncertainty” regarding future fiscal and economic programs. Many analysts are predicting another rate hike in June, but this could of course change, depending on how the effect that Trump’s economic platform has on the US economy. The Fed will need at least a few months to digest the economic stance of the incoming administration, and the uncertainty mentioned in the Fed minutes could lead to volatility in the markets in what promises to be an interesting first quarter of 2017.
Will 2017 be the year of lower production and higher prices for crude? Crude Inventories posted a huge drawdown of 7.1 million barrels, although crude prices haven’t moved higher in response. With the markets waiting to see if promised OPEC production cuts reduce global oversupply of crude, we could see further volatility from crude early in the year. In December, OPEC surprised the markets as members agreed to cut or limit production levels. This was quickly followed by a deal with Russia and other oil producers to cut production. These reductions took effect on January 1, but lower production is by no means a sure thing, as oil producers have often cheated on their production quotas in the past.
Thursday (January 5)
- 7:30 US Challenger Job Cuts. Actual 42.4%
- 8:15 US ADP Nonfarm Employment Change. Estimate 171K. Actual 153K
- 8:30 US Unemployment Claims. Estimate 262K. Actual 235K
- 9:45 US Final Services PMI. Estimate 53.4. Actual 53.9
- 10:00 US ISM Non-Manufacturing PMI. Estimate 56.6. Actual 57.2
- 10:30 US Natural Gas Storage. Estimate -97B. Actual -49B
- 11:00 US Crude Oil Inventories. Estimate -1.8M. Actual -7.1M
Friday (January 6)
- 8:30 US Average Hourly Earnings. Estimate 0.3%
- 8:30 US Nonfarm Employment Change. Estimate 175K
- 8:30 US Unemployment Change. Estimate 4.7%
*All release times are EST
* Key events are in bold
WTI/USD for Thursday, January 5, 2017
WTI/USD January 5 at 11:35 EST
Open: 53.23 High: 54.11 Low: 53.05 Close: 52.95
WTI USD Technical
- WTI/USD was flat in the Asian session. The pair posted small gains in European trade but has reversed directions in the North American session
- 52.22 remains a weak support level
- 58.32 is the next resistance line
Further levels in both directions:
- Below: 52.22, 46.54, 40.57 and 33.22
- Above: 58.32, 65.05 and 72.99
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