Crude Under Pressure, Slides to 12-Year Low

US Crude remains under pressure on Thursday, as crude futures trade at $34.03 per barrel in the North American session. On the release front, today’s key event was Unemployment Claims. The indicator was weaker than expected, with a reading of 271 thousand. The markets have shifted their attention to the December Nonfarm Payrolls report, which will be released on Friday. The markets are expecting a weaker reading than the November release, with the estimate standing at 203 thousand.

Crude oil is in deep trouble, having surrendered over 8 percent of its value so far this week. Crude touched a low of $32.10 earlier on Thursday, its lowest level since December 2003. Oil took a hit early in the week as nervous investors sought the safety of the US dollar following weak Chinese manufacturing data, which underscored the slowdown affecting the world’s second largest economy. Rising tensions between Saudi Arabia and Iran and a surprise nuclear device test by North Korea led to a further strengthening of the US dollar. Crude’s downward spiral has continued as China has devalued its currency, the yuan, by over 0.5%. This move has led to sharp declines on the global stock markets and has further weakened commodities such as crude oil.

Oil prices were as high as $115 back in June 2014, but prices have plunged due to a global surplus of oil which far exceeds demand. Oil producers have been unable to reach any agreement on lower production ceilings, as underscored at a recent OPEC meeting which ended in stalemate. Instead, oil exporters continue to produce at high levels in a desperate attempt to maintain market share, adopting the mantra of “every man for himself”. The recent flareup in the Persian Gulf in which Saudi Arabia has cut relations with Iran (both members of OPEC) will likely only make matters worse. Will the spiral continue? Experts such as Citigroup’s Ed Morse has stated that there is no end in sight, adding that US oil prices could drop as low as $20 a barrel.

US job data started off 2016 in style, as ADP Nonfarm Payrolls jumped to 257 thousand in December. This crushed the forecast of 193 thousand, and was the strongest gain since June 2014.Unemployment Claims were not as strong, as the reading of 277 thousand missed the estimate of 271 thousand. Still, the four-week average of jobless claims, a more accurate gauge of unemployment levels, remains strong. Elsewhere, the ISM Non-Manufacturing PMI came in at 55.3 points, short of the estimate of 56.0 points. However, this reading points to solid expansion in the services sector and underscores that the US economy is headed in the right direction. The Federal Reserve released the minutes of its December policy meeting, at which it raised rates by 0.25 percent. The minutes were noteworthy in highlighting differences among policymakers as to whether US inflation levels will improve. Indeed, some FOMC members said that their vote in favor of a rate hike was a close call because of concerns over persistently low inflation readings. The Fed has hinted that the December rate is the first of a series of incremental moves in 2016, but US inflation levels will play an important role in the timing and size of future rate hikes.

WTI/USD Fundamentals

Thursday (Jan. 7)

• 7:30 US Challenger Job Cuts. Actual -27.6%
• 8:30 US Unemployment Claims. Estimate 271K. Actual 277K
• 10:30 US Natural Gas Storage. Estimate -95B. Estimate -113B

Friday (Jan. 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 203K
• 8:30 US Unemployment Rate. Estimate 5.0%

*Key releases are highlighted in bold

*All release times are EST

WTI/USD for Thursday, January 7, 2016

WTI/USD January 7 at 16:40 GMT

WTI/USD  33.94 H: 34.25 L: 32.10

WTI/USD Technical

• WTI/USD posted losses in the Asian session and early in European trade. The pair then reversed directions, moving higher. This upward movement has continued in the North American session.
• 32.22 is providing support
• There is resistance at 35.09

Further levels in both directions:

• Below: 32.22, 30.00 and  26.64
• Above: 35.09, 37.75 and 39.87

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