Crude Flirting With $38 Level Following OPEC Standoff

US Crude has dropped for a second straight day, trading at $38.13 per barrel in the North American session. In economic news, it’s a quiet start to the week, with two minor releases. The Labor Market Conditions Index dipped to 0.5 points, and Consumer Credit will be released later in the day.

There was disappointment but not a great deal of surprise as OPEC members failed to reach an agreement on production cutbacks at a meeting in Vienna on Friday. Oil producers have shown little inclination to reduce their market share and cut back production, resulting in a huge global glut of oil that has led to a serious shortage of land-storage facilities, and many tankers cannot unload their cargo. The statement issued after the meeting was noticeable in that it failed to mention a production target, as previous OPEC meetings have at least stated a production target, even if historically OPEC members over-produced and failed to meet this goal. This points to deep discord amongst the OPEC nations, which means that oil prices could continue to head south.

All eyes were on the US Nonfarm Payrolls report on Friday. The key indicator dropped to 211 thousand in November, but still beat the estimate of 201 thousand. This indicator is often a market-mover, and the positive reading will lend support to Federal Reserve policymakers who are in favor of raising interest rates later this month. The Federal Reserve will obviously not confirm a widely-expected rate hike, but Fed chair Janet Yellen testified on Capitol Hill on Thursday, and signaled that a rate increase is likely in December, barring some unforeseen weak economic data before the rate decision on December 16. Earlier in the week, Yellen added that the Fed is satisfied with the progress shown by the US labor market. Persistently low inflation levels have hampered the recovery and are well below the Fed target of 2 percent, and is a key reason why the Fed did not raise rates earlier this year. However, Yellen stated that she expects inflation numbers to improve, so weak inflation is unlikely to be an impediment to an historic rate hike, with Fed Funds futures pricing in a 79% chance of an increase.

US PMI reports, key gauges of economic activity, had a disappointing week. On Tuesday, ISM Manufacturing PMI slipped to 48.6 points in November. This figure fell short of the estimate of 50.6 points, and marked the first contraction of the index since May 2013. Recent manufacturing releases were also soft, as the US manufacturing sector continues to struggle. There wasn’t any relief from ISM Non-Manufacturing PMI on Thursday, as the index slipped to 55.9 points, well short of the forecast of 58.1 points. This marked a six-week low for the indicator. The silver lining is that although the index took a hit in November, the reading was still above the 50 line, indicative of expansion.

WTI/USD Fundamentals

Monday (Dec.7)

  • 15:00 US Labor Market Conditions Index. Actual 0.5 points
  • 20:00 US Consumer Credit. Estimate -18.3B

Upcoming Key Events

Tuesday (Dec.8)

15:00 US JOLTS Job Openings. Estimate 5.59M

*Key releases are highlighted in bold

*All release times are GMT

WTI/USD for Monday, December 7, 2015

WTI/USD December 7 at 15:55 GMT

WTI/USD  38.59 H: 39.97 L: 38.50

WTI/USD Technical

S3 S2 S1 R1 R2 R3
33.22 35.09 37.75 39.87 42.59 44.30
  • Crude was flat in the Asian session and has posted losses in the European and North American sessions.
  • 39.87 has switched to a resistance role as oil continues to lose ground.
  • 37.75 is a providing support.

Further levels in both directions:

  • Below: 37.75, 35.09 and 33.22
  • Above: 39.87, 42.59, 44.30, 47.04 and 49.06

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.