US crude has recorded slight gains on Tuesday, extending the upward movement which marked the Monday session. In North American trade, WTI/USD futures are trading at $53.55. Brent crude futures are trading at $55.70, as the Brent premium stands at $2.15. On the release front, there are no US events on the schedule. On Wednesday, the US releases Crude Oil Inventories.
Crude Oil Inventories has posted four straight declines, missing expectations each time. If the indicator posts another decline on Wednesday, crude could continue to head higher. The recent production agreements which cover OPEC and Non-OPEC exporters has led to significant volatility in oil prices, but the volatility has since subsided, as the markets adopt a “wait and see” attitude, especially with regard to compliance by oil exporters with the required production cuts. Analysts expect US crude to remain in the $50-54 range for the next several weeks. Higher prices would encourage US shale producers to enter the market, which could offset the production cuts painstakingly engineered by OPEC.
December seems to be that special time of year for the Federal Reserve. When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.
With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.
Tuesday (December 20)
- There are no US releases on the schedule
Wednesday (December 21)
- 10:30 US Crude Oil Inventories
*All release times are EST
*Key events are in bold
WTI/USD for Tuesday, December 20, 2016
WTI/USD December 20 at 11:15 EST
Open: 53.07 High: 53.73 Low: 52.86 Close: 53.55
WTI USD Technical
- WTI/USD was flat in the Asian session. The pair has posted gains in the European and North American sessions
- 52.22 is a weak support
- 58.32 is the next resistance line
Further levels in both directions:
- Below: 52.22, 46.54, 40.57 and 33.22
- Above: 58.32, 65.05 and 72.99
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