Crude Oil Dips On Oversupply Jitters

US Crude has started the new trading week with losses, day, as US oil futures trade at to $31.18 a barrel in the North American session. There are no US releases on Monday, so traders will have to do without any economic cues until Tuesday, with the release of CB Consumer Confidence.

Crude oil displayed some volatility last week. WTI/USD slipped below the $28 during the week, its lowest level in 12 years. However, the pair posted sharp gains on Friday, as the heads of the ECB and BoJ both indicated that they were prepared to implement further easing steps if necessary. This triggered a huge short squeeze rally, but the downward movement has resumed on Monday.

Oil prices could head back below $30, as the ongoing global supply glut could worsen due to the Chinese slowdown which has rattled the markets in January. China is the world’s largest oil consumer after the United States, so recent soft numbers from the Asian giant, notably a drop in the most recent GDP report, has led to a significant drop in demand for oil, resulting in lower oil prices. Adding to oil’s woes is the return of Iran as an oil exporter as well as high production in North America, Russia and OPEC. The deck seems stacked against crude oil recovering anytime soon, as the ongoing oversupply of oil could last well into 2016.

The US economy has been generally strong, and received a vote of support from the Federal Reserve when it raised interest rates in December. However, one soft spot which has garnered a lot of concern is the inflation picture. This was underscored last week, as key inflation numbers missed their estimates. CPI dropped 0.1%, short of the estimate of 0.0%. Core CPI also softened, posting a gain of 0.1%. This was short of the forecast of 0.2%. Weak inflation indicators remain a concern for Federal Reserve policymakers, who must decide whether another interest rate hike would be appropriate in early 2016. Meanwhile, US jobless claims jumped to their highest level in 11 months, as the reading of 293 thousand was much worse than the estimate of 279 thousand. Will these weak numbers dampen Fed enthusiasm for a rate hike? There is speculation that the Fed could make a move in March, contingent on the strength of the US economy. A lack of inflation points to slack in the economy, and the Fed could hold off on another hike until inflation levels improve.

WTI/USD Fundamentals

Monday (Jan. 25)

  • There are no US events on the schedule

Key Upcoming Events

Tuesday (Jan. 26)

00:00 US CB Consumer Confidence. Estimate 96.6 points

*Key releases are highlighted in bold

*All release times are EST

WTI/USD for Monday, January 25, 2016

WTI/USD January 25 at 11:05 GMT

Open: 32.26 Low: 30.71 High: 32.72 Close: 31.38

WTI/USD Technical

S3 S2 S1 R1 R2 R3
22.28 26.64 30.00 32.22 35.09 35.09
  • WTI/USD was flat in the Asian session. The pair posted losses in European trade, and has leveled off in North American trade.
  • The round number of 30.00 has switched to a support level following losses by WTI/USD.
  • There is resistance at 32.22

Further levels in both directions:

  • Below: 30.00, 26.64, 22.88 and 20.00
  • Above: 32.22, 35.09, 37.75 and 39.87

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.