US Crude Inventories Sends West Texas Crude Lower

West Texas crude flexed some muscle on Wednesday but was unable to consolidate these gains. In the North American session, WTI futures are trading at $51.24. Brent crude futures are trading at $54.46, as the Brent crude premium stands at $3.22. On the release front, it was yet another surplus for Crude Oil Inventories, which came in at 1.6 million barrels, compared to the estimate of -0.1 million. ADP Employment Change jumped to 263 thousand, crushing the forecast of 184 thousand. The news was not as good from the services sector, as ISM Non-Manufacturing PMI dropped to 55.2, short of the forecast of 57.0 points. Later in the day, the Federal Reserve will release the minutes of its March policy meeting. On Thursday, the US releases the weekly unemployment claims report.

With the first quarter of 2017 in the books, oil prices are lower than on January 1. This is not the scenario that OPEC scripted, as its landmark deal to cut production was supposed to send crude above $60 a barrel and beyond. Instead, prices have fallen since the deal took effect on January 1. OPEC members have kept to the deal, as compliance levels have been exemplary. Still, the world remains awash in oil, as increasing US production has offset the OPEC cuts. US Crude Inventories continue to show surpluses, most of which have been higher than the forecast. This was the case again last week, with US crude inventories posting a strong gain of 1.6 million. The indicator has posted 12 surpluses in the last 13 weeks, which has helped keep oil prices close to the $50 level.

All eyes are on the Federal Reserve, which will release the minutes of its March policy meeting. At the meeting, the Fed raised rates by a quarter-point, to a range of 0.75%-1.00%. The markets will be paying close attention to the minutes, looking for hints about the timing of the next hike, as well as the tone of the minutes. These are factors which could move the currency markets on Wednesday. The markets considered the rate statement overly cautious, and this sentiment sent the US dollar broadly lower in March. If the reaction to the minutes is one of disappointment, the dollar could again experience broad losses.

With the US economy continuing to perform well, the discussions around the monetary policy tables are not whether the Fed will raise rates, but how many hikes we will see in 2017. There is speculation about whether the Fed will hike rates two more times or three more times, and Fed policymakers seemed divided on this question. Last week, FOMC member called for three more hikes, saying the Fed should raise rates in June, September and December. Rosengren said that employment and inflation levels were close to the Fed’s targets, and that three additional hikes were needed in order to prevent the US economy from overheating. However, a majority of FOMC members are in favor of just two more hikes this year.

Oil Lower After Surprise Rise in US Inventories

WTI/USD Fundamentals

Wednesday (April 5)

• 8:15 US ADP Nonfarm Employment Change. Estimate 184K. Actual 263K
• 9:45 US Final Services PMI. Estimate 53.1. Actual 52.8
• 10:00 US ISM Non-Manufacturing PMI. Estimate 57.0. Actual 55.2
• 10:30 US Crude Oil Inventories. Estimate -0.1M. Actual 1.6M
• 14:00 US FOMC Meeting Minutes

Thursday (April 6)

• 8:30 US Unemployment Claims. Actual 251K

*All release times are GMT

*Key events are in bold

WTI/USD for Wednesday, April 5, 2017

WTI/USD April 5 at 12:25 EST

Open: 51.18 High: 51.89 Low: 50.86 Close: 51.24

WTI USD Technical

WTI/USD edged up in the Asian session and posted stronger gains in European trade. However, the pair has given up these gains in North American trade

• 46.54 is providing support
• 52.22 is a weak resistance line
• Current range: 46.54 to 52.22

Further levels in both directions:

• Below: 46.54, 40.57 and 33.22
• Above: 52.22, 58.32, 65.05 and 72.99

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