Crude Edges Above $48, Markets Eye FOMC Minutes

US crude is steady on Tuesday, as crude trades at $48.10 per barrel in the North American session. Brent crude is trading at $49.22, as the Brent premium stands at $1.12. In economic news, US consumer inflation reports posted small gains. Core CPI posted a small gain of 0.2%, while CPI improved to 0.4%. Both readings were within expectations. Building Permits came in at 1.12 million, very close to the forecast.

US crude prices remain steady, as crude remains at 6-month highs. Crude received a boost as Canadian oil production has been disrupted as a massive wildfire in northern Alberta forced the evacuation of 90,000 people and disrupted shut down some oil facilities. Oil firms have restarted production in the region of the wildfire, albeit on a limited basis. Oil prices have taken a beating since last summer due to oversupply, but prices have stabilized in recent weeks. On Monday, the well-respected investment firm of Goldman Sachs said that oil could continue to climb, as a two-year state of oversupply was at an end due to global oil disruptions. The markets are keeping an eye on Crude Oil Inventories, which will be released on Wednesday.

The US manufacturing industry continues to struggle, as underscored by an important manufacturing indicator on Monday. The Empire State Manufacturing Index posted a sharp decline of 9.0 points, well off the estimate of a gain of 7.2 points. The indicator surprised with a gain of 9.6 points in April, and the markets were counting on another strong gain. Manufacturing continues to be a soft spot in a generally solid economy, as a weak global economy and the slowdown in China have reduced demand for US-made goods.

The Federal Reserve, never far from the financial headlines, will take over center stage on Wednesday with the release of the April minutes. The Fed has sent out the message that a June hike is on the table, but the markets remain skeptical, following the soft Nonfarm Payrolls report earlier this month and Tuesday’s weak consumer inflation reports. With the economy showing mixed employment numbers and inflation stuck at low levels, a June hike would be nothing less than a shock, a reason in itself for the Fed to remain on the sidelines and avoid causing market turbulence. The markets are clearly expecting rates to remain at the current level of 0.25%, with the implied probability of a hike down to just 4%. Soft CPI numbers on Tuesday will only reinforce market sentiment that the Fed is unlikely to make a move prior to September.

The US economy remains generally solid and last week’s retail sales and consumer confidence reports beat expectations. Core Retail Sales posted a strong gain of 0.8%, above the estimate of 0.6%. Retail Sales surged 1.3%, its strongest gain in over six years. The gain was all the more impressive as the markets had anticipated a decline of 0.3%. Consumer confidence also looked sharp, as UoM Consumer Sentiment jumped to 95.8 points, compared to the estimate of 89.9 points.

WTI/USD Fundamentals

Tuesday (May 17)

• 8:30 US Building Permits. Estimate 1.13M. Actual 1.12M
• 8:30 US CPI. Estimate 0.3%. Actual 0.4%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.2%
• 8:30 US Housing Starts. Estimate 1.12M. Actual 1.17M
• 9:15 US Capacity Utilization Rate. Estimate 75.1%. Actual 75.4%
• 9:15 US Industrial Production. Estimate 0.3%. Actual 0.7%

Upcoming Key Events

Wednesday (May 18)

• 14:00 US FOMC Meeting Minutes

*Key events are in bold

*All release times are EDT

WTI/USD for Tuesday, May 17, 2016

WTI/USD May 17 at 11:30 EDT

Open: 47.86 Low: 47.54 High: 48.41 Close: 48.10

WTI/USD Technical

• WTI/USD has showed limited movement in the Tuesday session
• There is resistance at 50.13. This line has held firm since October 2015
• 46.69 is providing support

Further levels in both directions:

• Below: 46.69, 43.45, 40.00 and 37.75
• Above: 50.13, 53.50 and 56.79

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