US Crude Subdued, FOMC Statement Next

US crude is showing little movement, continuing the trend we have seen all week. WTI Crude is trading at $48.39 in the North American session. Brent crude is trading at $49.27, for a premium of $0.88. There was positive news out of the US, as PPI came in at 0.4%, beating the estimate of 0.3%. As well, the Empire State Manufacturing Index was unexpectedly strong, with a reading of 6.0 points. US Crude Inventories continue to decline, with a reading of -0.9 million. Today’s highlight is the FOMC rate statement, with the markets expecting the Federal Reserve to maintain the current benchmark rate of 0.25%.

The Federal Reserve returns to the spotlight on Wednesday, as the Fed concludes its policy meeting with a rate statement. The markets have written off a rate hike in June, while a July move remains unlikely, according to the CME Group. The chances of a June hike are just 1.9% compared to a 26.3% in May. The chances of a July hike is 17.9%, compared to 43.2% in May. The sharp drop in market sentiment for a rate hike can be attributed to the dismal US Nonfarm Payrolls report as well as some backpedaling by Fed over the past few weeks. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. Since then, Yellen has sounded more cautious, and in a recent speech she was careful to avoid a time frame regarding a rate hike. To be fair, the Fed has made a strong effort to communicate clearly with the markets, and has stated that the timing of a rate hike would be data-dependent. With the US economy posting some mixed numbers and inflation levels remaining at low levels, it should not come as a surprise that the Fed may stay on the sidelines until September or even later. Although it’s extremely unlikely that the Fed will make a move in June, the markets will be carefully monitoring the upcoming rate statement, looking for some clues regarding the timing of another hike.

With WTI Crude steadily improving and currently trading close to the $50 level, US shale producers are once again drilling, and this increase in supply could lead to US crude reversing directions and losing ground. If US crude prices head closer to $60, we are likely to see more shale rigs return to production. Stockpiles of US crude continue to decline, as Crude Oil Inventories posted a decline of 0.9 million barrels last week. The indicator has recorded declines in five of the past six readings, as lower supplies have helped stabilize the price of US crude in recent weeks. Meanwhile, OPEC said on Tuesday that it expects oil prices to drop in the second half of 2016, as shutdowns in Nigeria and Canada are expected to lead to tighter supplies than expected. Still, OPEC does not expect prices to move significantly higher, as the cartel acknowledged that the there is a massive oversupply of oil, which is weighing on oil prices.

WTI/USD Fundamentals

  • 8:30 US PPI. Estimate 0.3%. Actual 0.4%
  • 8:30 US Core PPI. Estimate 0.1%. Actual 0.3%
  • 8:30 US Empire State Manufacturing Index. Estimate -3.4. Actual 6.0
  • 9:15 US Capacity Utilization Rate. Estimate 75.2%. Actual 74.9%
  • 9:15 US Industrial Production. Estimate -0.2%. Actual -0.4%
  • 10:30 US Crude Oil Inventories. Actual -0.9 million
  • 14:00 US FOMC Economic Projections
  • 14:00 FOMC Statement
  • 14:00 US Federal Funds Rate. Estimate <0.50%
  • 14:30 US FOMC Press Conference
  • 16:00 US TIC Long-Term Purchases

*Key events are in bold

*All release times are EDT

WTI/USD for Wednesday, June 15, 2016

WTI/USD June 15 at 12:00 EDT

Open: 47.84 Low: 47.58 High: 48.72 Close: 48.39

WTI/USD Technical

S3 S2 S1 R1 R2 R3
39.32 43.45 46.69 50.13 53.50 56.79
  • WTI/USD was flat in the Asian and European sessions. The pair has posted slight gains in North American trade
  •  46.69 is providing support
  • There is resistance at 50.13

Further levels in both directions:

  • Below: 46.69, 43.45 and 39.32
  • Above: 50.13, 53.50, 56.79 and 60.68

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.