The key factors determining the oil markets are the EIA (American Energy Information Agency) and the Fed. The decisions will determine if the oil will break the resistance identified by the technical analysis and keep going up or it will rebound and go down again, as shown by a Saxo Bank report made by Ole Hansen, director for Commodities Strategy.
Brent crude oil and WTI take a short break while awaiting the weekly report on the Energy Information Administration’s, as well as the outcome of the Federal Reserve meeting. Although the fundraising remains strong due to limited stocks, a pattern of earnings has emerged after both contracts have returned to 50 percent of the October-December liquidation. At the same time, the psychological barriers of USD 70 per barrel for Brent and USD 60 per barrel for WTI have also attracted a certain amount of profit taking.
The sidelines of the US-China trade talks continue with some market disturbances that emerged after US officials said they were afraid of a rejection from China. The prospect of an agreement has been one of the key reasons for the continued market power since January. Although both presidents, for different reasons, are willing to conclude an agreement, the end result may not be strong enough to sustain the continuing appetite for risk.
This week’s inventory report of the American Petroleum Institute showed a new week with declining inventories for both crude oil and petroleum products. The drop of 2.1 million barrels of crude oil would be the second consecutive seasonal decline. Except for stock levels, the market will, as usual, closely follow foreign trade, but also the current level of refinery activity.
Turning the attention to the FOMC meeting, estimates of what Powell and the company will decide to do have become almost an inevitable conclusion – an evolution that could expose certain markets if they fail to get results on the three points highlighted above down:
- maintaining stable interest rates
- announcing the plans for the end of the asset run in its own balance sheet
- Declining estimates of the number of this year’s interest rate increases.
Anything but the reduction in estimates of the number of future interest increases from the two current ones will be considered as negative. Especially taking into account current market expectations (using Fed funds futures), which foresee an increase in the probability of a rate cut before the end of the year to 26 percent. However, the reduced stress in all global financial markets over the weeks of stock growth has probably reduced the FOMC’s desire to meet market expectations.
The current relationship between crude oil and Fed’s action and outlook is through its potential impact on stocks and the overall level of risk appetite, as well as the dollar’s reaction.
The WTI crude is trading for the first time in nine days after it has experienced resistance at USD 59.63 per barrel, a 50 percent recovery of the October-December liquidation. If the US Federal Reserve fails to meet the conciliatory expectations, there could be a new pattern of profit taking.