US Crude has reversed directions and moved higher on Tuesday, as futures for March delivery trade at to $31.26 a barrel in the North American session. In economic news, CB Consumer Confidence climbed to 98.1 points, beating the estimate. On Wednesday, the Federal Reserve will set interest rates and release a policy statement.
Oil prices fell below $30 to start off the week, but have recovered and pushed above $31 on Tuesday. The ongoing global supply glut could worsen and drag down prices further, 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.
Market focus will shift to the Federal Reserve on Wednesday, as the Fed concludes a two-day meeting and issues a policy statement. Will the Fed raise rates for the second time in two months? It’s very unlikely that Janet Yellen will again press the rate trigger. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed may opt to hold off from further tightening for the near future. We can expect the Fed to perform a balancing act in the upcoming statement, acknowledging weaker economic conditions while emphasizing that the economy continues to grow. The collapse of oil prices has contributed to the weak inflation picture, with current inflation levels well below the Fed target of 2.0%. Traders should be prepared for possible volatility following the upcoming policy statement.
WTI/USD Fundamentals
Tuesday (Jan. 26)
- 9:00 US HPI. Estimate 0.4%. Actual 0.5%
- 9:00 S&P/CS Composite-20 HPI. Estimate 5.7%. Actual 5.8%
- 9:45 US Flash Services PMI. Estimate 53.9 points. Actual 53.7 points
- 10:00 US CB Consumer Confidence. Estimate 96.6 points. Actual 98.1 points
- 10:00 US Richmond Manufacturing Index. Estimate 3 points. Actual 3 points
Wednesday (Jan. 27)
- 14:00 FOMC Statement
- 14:00 Federal Funds Rate. Estimate <0.50%
*Key releases are highlighted in bold
*All release times are EST
WTI/USD for Tuesday, January 26, 2016
WTI/USD January 26 at 11:05 GMT
Open: 32.26 Low: 30.71 High: 32.72 Close: 31.11
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 for most of the Asian session. The pair has posted gains in the European and North American sessions.
- The round number of 30.00 is providing support. It is a weak line.
- 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
