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Crude oil hitting the buffer ahead of key resistance
Ole Hansen
Head of Commodity Strategy
Summary: The key drivers of crude oil markets today are the EIA and the Fed.
UPDATE: Large draws across the board have sent crude oil prices rallying higher in the wake of today's inventories report.
Turning our attention to the FOMC meeting, the expectations for what Powell and company decide to do have become an almost foregone conclusion – a development that could leave some markets exposed should they fail to deliver on the three points highlighted here:
• Hold interest rates steady
• Announce plans for the end of the asset roll-off from its balance sheet
• Lower projections for the number of interest-rate hikes this year.
Anything but a lowering of the projections for the number of future rate hikes from the current two will be taken as negative. Not least considering the current market expectations (using Fed funds futures), which have seen the probability of a rate cut before year-end rise to 26%. However, the reduced stress across global financial markets following weeks of surging stocks have potentially reduced the FOMC’s willingness to play ball with market expectations.
The current link between crude oil and the Fed’s action and outlook is through the potential impact on equities and the general level of risk appetite, as well as the dollar's reaction.
WTI crude oil trades lower for the first time in nine days after finding resistance at $59.63/b, the 50% retracement of the October to December sell-off. Should the US Federal Reserve fail to satisfy the dovish expectations, some additional profit-taking may emerge.
• Hold interest rates steady
• Announce plans for the end of the asset roll-off from its balance sheet
• Lower projections for the number of interest-rate hikes this year.
Anything but a lowering of the projections for the number of future rate hikes from the current two will be taken as negative. Not least considering the current market expectations (using Fed funds futures), which have seen the probability of a rate cut before year-end rise to 26%. However, the reduced stress across global financial markets following weeks of surging stocks have potentially reduced the FOMC’s willingness to play ball with market expectations.
The current link between crude oil and the Fed’s action and outlook is through the potential impact on equities and the general level of risk appetite, as well as the dollar's reaction.
WTI crude oil trades lower for the first time in nine days after finding resistance at $59.63/b, the 50% retracement of the October to December sell-off. Should the US Federal Reserve fail to satisfy the dovish expectations, some additional profit-taking may emerge.