Crude Oil Choppy as Markets Eye Fed Statement

US crude is choppy on Wednesday, as crude futures are trading at $31.41 a barrel in the North American session. In economic news, US News Home Sales surged to 544 thousand, well above expectations. Crude Oil Inventories posted a surplus of 8.4 million, much higher than the estimate. All eyes are on the Federal Reserve, which will issue its monthly policy statement and set the benchmark interest rate later in the day.

Oil prices have clawed back above the $30 level, but remain under pressure. The supply glut shows no signs of improving anytime soon, as Crude Oil Inventories posted a huge surplus of 8.4 million, compared to 4.0 million a week earlier. This reading was much higher than the forecast of 3.8 million. China is in the midst of a slowdown, and recent soft numbers from the Asian giant, notably a drop in the most recent GDP report, has led to a significant drop in demand for oil, resulting in lower oil prices. Adding to oil’s woes is the return of Iran as an oil exporter as well as high production in North America, Russia and OPEC. The deck seems stacked against crude oil, and the ongoing oversupply of oil could last well into 2016.

Janet Yellen and Company are in the spotlight on Wednesday, as the Federal Reserve concludes a two-day meeting and issues a policy statement. The Fed is expected to maintain interest rates at the current level of 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets down and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed could hold off from further tightening until mid-2016 or even later. The January statement could well be a balancing act, with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction. The collapse of oil prices has contributed to the weak inflation picture in the US, with current inflation levels well below the Fed target of 2.0%. Low inflation, indicative of slack in the economy, remains a significant concern for Fed policymakers, who are unlikely to approve another rate hike without an upturn in inflation.

WTI/USD Fundamentals

• 10:00 US New Home Sales. Estimate 501K. Actual 544K
• 10:30 US Crude Oil Inventories. Estimate 3.8M. Actual 8.4M
• 14:00 FOMC Statement
• 14:00 Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (Jan. 28)

• 8:30 US Core Durable Goods Orders. Estimate 0.0%
• 8:30 US Unemployment Claims. Estimate 281K

*Key releases are highlighted in bold

*All release times are EST

WTI/USD for Wednesday, January 27, 2016

WTI/USD January 27 at 11:15 GMT

Open: 31.45 Low: 30.15 High: 31.56 Close: 31.41

WTI/USD Technical

• WTI/USD has been choppy throughout the day.
• The round number of 30.00 is under pressure. It is a weak line.
• There is resistance at 32.22

Further levels in both directions:

• Below: 30.00, 26.64, 22.88 and 20.00
• Above: 32.22, 35.09, 37.75 and 39.87

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