WTI/USD – Oil Under Pressure as US Drilling Intensifes

US crude has ticked lower on Monday, following losses in the Friday session. In North American trade, US crude futures are trading at $52.84. Brent crude futures are trading at $55.31, as the Brent premium stands at $2.47. On the release front, it’s a light schedule. In the US, Pending Home Sales rebounded with a strong gain of 1.6%, matching the forecast. On Tuesday, the US releases CB Consumer Confidence, with the markets expecting a solid reading of 112.6 points.

With great fanfare, OPEC and other producers signed an agreement in December to curb production, aimed at boosting weak oil prices. This agreement went into effect on January 1. Fast forward to the end of January, and crude prices have actually edged lower this month. It appears that the global oversupply has not receded. What gives? One possibility is that the exporters which signed the deal have not kept to their production quotas – compliance has been a sore point in previous OPEC agreements and the pattern could be repeating itself. As well, US oil drilling is on the upswing, as underscored by the number of rigs commencing operation, which continues to increase each week. We’ll have to wait for January production reports in the US and from OPEC to get a better idea of which way oil prices are headed.

Analysts had predicted that US economic growth would soften in the fourth quarter, and Advance GDP fell short of the estimate. The economy expanded 1.9%, shy of the estimate of 2.1%. Business investment and consumer spending remains solid and should continue into 2017. However, Trump’s protectionist rhetoric and action, which saw tensions escalate with Mexico last week, could darken the bright picture for the US economy.

Donald Trump continues to stir controversy, after signing a host of executive orders last week which have been condemned both domestically and abroad. Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico. He has also ordered work to begin on a wall with Mexico and banned immigrants from seven Moslem countries. Trump’s unconventional and disjointed approach to international politics and trade could have major ramifications on global trade and could lead to financial instability in global markets, triggering volatility in the currency markets. Just a few days before being sworn in as president, Trump stated that the US dollar was “too strong”, blaming a weak Chinese currency. Predictably, the greenback lost ground after Trump’s remarks. It’s a safe bet that Trump’s offhand tweets and comments will continue to fuel market volatility.

WTI/USD Fundamentals

Monday (January 30)

• 8:30 US Core PCE Price Index. Estimate 0.1%
• 8:30 US Personal Spending. Estimate 0.4%
• 8:30 US Personal Income. Estimate 0.4%
• 10:00 US Pending Home Sales. Estimate 1.6%
• Tentative – US Loan Officer Survey

Upcoming Key Events

Tuesday (January 31)

• 10:00 US CB Consumer Confidence. Estimate 112.6

*All release times are GMT

*Key events are in bold

WTI/USD for Monday, January 30, 2017

WTI/USD January 30 at 10:55 EST

Open: 52.97 High: 55.46 Low: 52.68 Close: 52.84

WTI USD Technical

WTI/USD was flat in the Asian session and posted edged higher in European trade. The pair has reversed directions and posted losses in North American trade

• 52.22 remains a weak support line
• 58.32 is the next resistance line
• Current range: 52.22 to 58.32

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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