US Crude Prices Edge Higher, Markets Eye Crude Oil Inventories, OPEC Meeting

US crude prices have posted small gains on Tuesday, as the commodity trades at $49.93 in the North American session. Brent crude is trading at $50.71, for a premium of $0.77. On the release front, CB Consumer Confidence dipped to 92.6 points, well short of expectations. Personal Spending climbed 1.0%, beating the estimate. On Wednesday, the US releases ISM Manufacturing PMI, a key indicator.

US crude remains steady and touched above the symbolic level of $50 last week, its highest level since early October. Crude is showing little movement this week, as the markets keep an eye on the OPEC meeting in Vienna on Thursday. Analysts are not expecting OPEC members to reach an agreement on a production cap or new targets, given the deep animosity between Saudi Arabia and Iran. Ahead of the meeting, Iraq, which is the second-largest producer in OPEC, announced that it will raise exports by 5 million barrels in June. This kind of jockeying for a larger piece of the oil market pie has been characteristic of many OPEC countries ,which have adopted a mantra of “every man for himself”, resulting in previous summits concluding without agreement. Thursday will also see the release of Crude Oil Inventories, which could result in volatility from WTI/USD. Last week, the indicator was unexpectedly soft, posting a decline of 4.2 million barrels, compared to an estimate of -1.7 million.

US consumer numbers were a mix on Tuesday. CB Consumer Confidence dropped to 92.6 points, well off the forecast of 96.1 points. This was the indicator’s weakest reading in three months. There was better news from Personal Spending, which jumped 1.0% in April. This beat the forecast of 0.7% and marked the indicator’s strongest gain since 2009. On Friday, Preliminary GDP, which can be viewed as an economic report card, posted a gain of 0.8%, matching the forecast. This was an improvement from Advanced GDP, which came in at 0.5%. Still, the economy slowed down considerably compared to the fourth quarter of 2015. The export sector has been hurt by the strong US dollar and weak global demand. Oil prices remain low, which has taken a sharp toll on the oil industry. Elsewhere, the UoM Consumer Sentiment report improved in April, climbing to 94.7 points. This marked the indicator’s highest level in 11 months, although it was short of the estimate of 95.7 points.

Will the Fed raise rates in June or soon after? Recent comments by Federal Reserve chair Janet Yellen and other Fed policymakers have strongly hinted that a rate hike is on the table this summer. On Friday, Yellen said that if the US economy continued to improve, a rate hike would be appropriate in the “coming months”. This was followed by St. Louis Reserve President James Bullard, who said on Monday that global markets were “well prepared” for a summer interest rate rise, although he didn’t provide any specific dates. Odds of a rate hike in June have sharply increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. Last week, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

WTI/USD Fundamentals

Tuesday (May 31)

• 8:30 US Core PCE Price Index. Estimate 0.2%. Actual 0.2%
• 8:30 US Personal Spending. Estimate 0.7%. Actual 1.0%
• 8:30 US Personal Income. Estimate 0.4%. Actual 0.4%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.1%. Actual 5.4%
• 9:45 US Chicago PMI. Estimate 50.8
• 10:00 US CB Consumer Confidence. Estimate 96.1. Actual 92.6 points

Wednesday (June 1)

• 14:00 US ISM Manufacturing PMI. Estimate 50.5

*Key events are in bold

*All release times are EDT

WTI/USD for Tuesday, May 31, 2016

WTI/USD May 31 at 10:35 EDT

Open: 49.51 Low: 49.33 High: 49.98 Close: 49.93

WTI/USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted slight gains in the North American session.
• 50.13 remains a weak resistance line
• 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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