WTI/USD – US Crude Climbs as Weaker Dollar Buoys Sentiment

US crude has posted considerable gains on Thursday, continuing the upward movement which marked the past two sessions. In North American trade, WTI/USD futures are trading at $46.40 per barrel. Brent futures have risen to $47.64, as the Brent premium continues to narrow and stands at $1.24. In economic news, unemployment claims dropped to 252 thousand, well below the forecast of 261 thousand. However, existing home sales fell to 5.33 million, short of the estimate of 54.5 million.

US numbers were mixed on Thursday. Unemployment Claims sparkled, dropping to just 252 thousand, the lowest weekly level since mid-April. The excellent figure underscored a labor market which continues to approach full capacity. The news was not as positive from the housing sector, as Existing Home Sales slipped in August to 5.33 million, marking a five-month low. Earlier this week, Building Permits and Housing Starts both softened in August and missed their estimates.

Crude Oil Inventories posted a third weekly decline on Wednesday, as supplies dropped by 6.2 million. Market estimates have been well off the mark for all three readings, underscoring the challenge in making accurate predictions of crude inventories. The sharp drawdown gave a lift to US crude on Wednesday, briefly pushing the commodity above the symbolic $45 level. With the continuing oversupply of crude weighing on oil prices, there is a sense of urgency among oil producers to cap production in order to stabilize prices. Major oil producers will meet next week in Algiers, and Venezuelan President Nicolas Maduro said that OPEC and non-OPEC countries were “close” to reaching a deal. However, previous summits have ended without any agreement on a production freeze, and there is a great deal of skepticism that things will be any different this time around.

All eyes were on the Federal Reserve on Wednesday, as the central bank set interest rates and released a policy statement. As widely expected, the bank maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent within the FOMC underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”.

The Fed policy statement noted strong growth in employment and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three to two hikes.

WTI/USD Fundamentals

Thursday (September 22)

• 8:30 US Unemployment Claims. Estimate 261K. Actual 252K
• 9:00 US HPI. Estimate 0.3%. Actual 0.5%
• 10:00 US Existing Home Sales. Estimate 5.45M. Actual 5.33M
• 10:00 US CB Leading Index. Estimate 0.0%. Actual -0.2%
• 10:30 US Natural Gas Storage. Estimate 59B. Actual 52B

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, September 22, 2016

WTI/USD September 22 at 12:45 EDT

Open: 45.57 High: 46.52 Low: 45.57 Close: 46.40

WTI USD Technical

• WTI/USD was flat in the Asian session. The pair has posted small gains in the European and North American trade
• 43.45 is providing support
• 46.49 was tested in resistance earlier and could break in the North American session

Further levels in both directions:

• Below: 43.45, 38.38 and 32.33
• Above: 46.69, 50.13, 53.50 and 59.69

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