Crude Oil Rises, US Durables Soften

WTI Crude is subdued on Wednesday, as crude futures trade at $37.05 per barrel in the North American session. In the US, it has been a busy day on the release front. Core Durable Goods Orders came in at -0.1%, while Durable Goods Orders posted a flat reading of 0.0%. New Home Sales disappointed, dropping to 490 thousand, but UoM Consumer Sentiment improved to 92.6 points. Crude Oil Inventories posted a sharp drop, coming in at -5.9 million.

Oil prices have moved higher on Wednesday, climbing above the $37 level for the first time in a week. Oil received a boost as the weekly Crude Oil Inventories report showed a surprising drop of 5. 9 million barrels, compared to the forecast of a surplus of 1.4 million. Still, oil has nosedived since the start of November, when a barrel cost over $45, battered by a huge global glut of oil. The low prices could continue well into 2016, although if geopolitical crises arise which threaten the supplies, oil prices could rebound in a hurry. With OPEC in disarray and Iran biting at the chomp to sell its oil after years of international sanctions, there isn’t much to attract investors to oil, and some analysts are predicting that oil could slip below the $30 level next year.

In the US, Durable Goods reports were unimpressive, underscoring weakness in the US manufacturing sector. Core Durable Goods slipped by 0.1%, short of the forecast of a 0.1% gain. Durable Goods came in at 0.0%, but this beat the estimate of -0.6%. Housing numbers also disappointed, as New Home Sales dipped to 490 thousand, well off the estimate of 507 thousand. This reading comes on the heels of Existing Home Sales, which posted a weak reading of 4.76 million, its worst performance since April 2014. There was some good news from consumer indicators, as the UoM Consumer Sentiment improved to 92.6 points, above the forecast of 92.1 points and marking a 4-month high.

In a historic move, the Federal Reserve finally pressed the rate trigger, raising interest rates by 0.25 percent, the first rate hike since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and market volatility was not excessive after the US rate hike, given the fact that it was the first hike in almost 10 years. Although a hike of 0.25 percent is expected to have limited economic impact, the Fed move has given the US economy a critical vote of confidence, and this will be duly noted by the global markets. As well, this move is expected to be the first in a series of incremental rate hikes over the course of 2016, and higher interest rates means that the US dollar will become even more attractive to investors, which could spell even more trouble for commodities such as oil.

WTI/USD Fundamentals

Wednesday (Dec. 23)

• 00:50 US Personal Spending. Estimate 0.3%. Actual 0.3%
• 13:30 US Core Durable Goods Orders. Estimate 0.1%. Actual -0.1%
• 13:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%
• 13:30 US Durable Goods Orders. Estimate -0.6%. Actual 0.0%
• 13:30 US Personal Income. Estimate 0.2%. Actual 0.3%
• 15:00 US New Home Sales. Estimate 507K. Actual 490K
• 15:00 US Revised UoM Consumer Sentiment. Estimate 92.1 points. Actual 92.6 points
• 15:00 US Revised UoM Inflation Expectations. Actual 2.6%
• 15:30 US Crude Oil Inventories. Estimate 1.4M. Actual -5.9M

Thursday (Dec. 24)

• 13:30 US Unemployment Claims. Estimate 270K

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Wednesday, December 23, 2015

WTI/USD December 23 at 16:30 GMT

WTI/USD  37.24 H: 37.79 L: 36.14

WTI/USD Technical

• Crude was flat in the Asian session and posted small gains in European trade. The pair has posted stronger gains in the North American session.
• 35.09 is providing support
• 37.75 is under strong pressure in support and  could break during the North American session

Further levels in both directions:

• Below: 35.09, 32.22, 30.00 and 27.60
• Above: 37.75, 39.87 and 42.59

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