Crude oil hitting the buffer ahead of key resistance Crude oil hitting the buffer ahead of key resistance Crude oil hitting the buffer ahead of key resistance

Crude oil hitting the buffer ahead of key resistance

Commodities 4 minutes to read
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.
Ole Hansen on the EIA report
Brent and WTI crude oil are both taking a breather while awaiting the Energy Information Administration’s weekly stock report at 14:30 GMT as well as the the result of the Federal Reserve’s policy meeting at 18:00 GMT. While fundamental support remains strong due to tightening supply, some profit-taking has emerged after both contracts retraced 50% of their October to December sell-off. At the same time, the psychological barriers at $70/barrel on Brent and $60/b on WTI are also likely to have attracted some profit taking. 

The trade negotiation saga between the US and China rolls on with some market jitters emerging after US officials said they feared a Chinese pushback. The prospect of a deal has been one of the key reasons for continued market strength since January. While both presidents, for separate reasons, are keen to seal a deal, the eventual outcome may not be strong enough to support continued risk appetite. 

Yesterday’s stock report from the American Petroleum Institute showed another week of falling inventories in both crude oil and products. The 2.1 million barrel drop in crude oil will if confirmed by the EIA later be the second counter-seasonal drop in a row.  Apart from stock levels, the market will as usual also keep a close eye on foreign trade as well as the current level of refinery activity. 
EIA Petroleum Status 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. 
Crude oil
Source: Saxo Bank

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.