The oil rally continues on Wednesday, as US crude trades just shy of the $50 level on Wednesday. In the North American session, WTI/USD futures are trading at $49.83 per barrel. Brent futures have risen to $51.83, as the Brent premium stands at $2.02. On the release front, ADP Employment Change slipped to 154 thousand, short of the forecast of 166 thousand. There was excellent news from the services sector, as ISM Non-Manufacturing PMI jumped to 57.1, above the forecast of 53.1. On Thursday, the US will release Unemployment Claims, with the estimate standing at 255 thousand.
US crude has posted five straight winning (daily) sessions, surging an impressive 11 percent during this period. Crude has moved higher on Wednesday, as Crude Oil Inventories posted a decline of 3 million barrels, surprising the markets, which had predicted a surplus of 1.1 million. Crude inventories have posted declines in five straight releases and on each occasion, the markets have forecast a surplus. Oil prices have been buoyed by the surprise agreement by OPEC members to lower production levels, although an official agreement is not expected to be signed until November. Weak oil prices have put a major dent in the revenues of oil exporters, and a cap agreement could stabilize prices at $50-60 a barrel. However, OPEC members have blatantly cheated on their production quotas in the past, so it remains to be seen if countries like Iran will actually implement production cuts.
US employment numbers will be in the spotlight over the next few days. The ADP payroll report was a disappointment, dropping to 154 thousand, its lowest gain since February 2014. With the odds of a December rate hike priced in at about 55%, Friday’s triple-release of US job numbers will be especially important. The markets are expecting some improvement in the September numbers. Non-farm Employment Change is expected to improve to 171 thousand, while Average Hourly Earnings, which measures wage growth, is forecast to edge higher to 0.2%. The unemployment rate has held steady at 4.9% for three months and no change is expected.
The Fed remains divided over the timing of a rate hike, and this was underscored at the September meeting, when three of the ten FOMC members voted against the decision to hold rates at 0.25%, voting instead in favor of an immediate rate hike. On Tuesday, FOMC member Jeffrey Lacker, one of seven non-voting members, said that he would have voted in favor of a rate hike at the last meeting had he been able to vote. The strong dissent in the September rate decision has not helped the credibility of the Fed, which had promised a series of rate hikes in 2016, but has opted for the sidelines since its quarter-point hike last December. Continuing mixed messages from the Fed make it difficult for the markets to ascertain what the Fed has planned regarding monetary policy and whether it will press the rate trigger in December or wait until next year.
WTI/USD Fundamentals
Wednesday (October 5)
- 8:15 US ADP Nonfarm Employment Change. Estimate 166K. Actual 154K
- 8:30 US Trade Balance. Estimate -41.1B. Actual -40.7B
- 9:45 US Final Services PMI. Estimate 51.9. Actual 52.3
- 10:00 US ISM Non-Manufacturing PMI. Estimate 53.1. Actual 57.1
- 10:00 US Factory Orders. Estimate -0.4%. Actual +0.2%
- 10:30 US Crude Oil Inventories. Estimate +1.1M. -3.0M
Upcoming Key Events
Thursday (October 6)
- 8:30 US Unemployment Claims. Estimate 255K
*Key events are in bold
*All release times are EDT
WTI/USD for Wednesday, October 5, 2016
WTI/USD October 5 at 13:30 EDT
Open: 49.17 High: 49.95 Low: 49.11 Close: 49.83
WTI USD Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 38.38 | 43.45 | 46.69 | 50.13 | 53.50 | 59.60 |
- WTI/USD was flat in the Asian session. The pair has posted gains in the European and North American sessions
- 46.69 is providing support
- There is weak resistance at 50.13
Further levels in both directions:
- Below: 46.69, 43.45, 38.38 and 32.33
- Above: 50.13, 53.50 and 59.69
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