WTI crude oil pulled back below the the psychological $40.00 level on record breaking crude oil stocks.
Fundamentals
The weekly United States (U.S) Department of Energy (DoE) oil report showed a substantial increase in total crude oil stocks, which stand well above 500 million barrels in storage around the United States. There was a significant drawdown (reduction) in gasoline stocks, one of the reasons the market has been rallying. However, it seems the strong demand for gasoline is not enough to help the market this year, as supply continues to increase each week at record numbers.
Manufacturing data out of Japan and the U.S. came out negative, an indication that global growth concerns, China’s slowdown and the stronger dollar are here to stay for a while. There was some positive news for the U.S. labor market with unemployment claims coming in below expectations. The labor market has supported the dollar and the expectation that the next Fed meeting will result in the first rate hike of the year. A stronger dollar will put pressure on the oil market.
Technicals
WTI has strong resistance at the 200 Simple Moving Average (SMA) around the $42.00 level. The market has been below the 200 SMA for more than 400 days, now the longest period on record. Initially support at $38.47 and break below will take the market down to $34.25.
What to expect next week?
Friday will see manufacturing data out China, Japan and the U.S., as well as labor figures. All of this should make for a big market moving day.
- Japan Tankan Large Manufacturing Index previous 12
- Japan Tankan Large Non-Manufacturing Index previous 25
- China Manufacturing PMI previous 49
- China Caixin Manufacturing previous 48
- U.S. Non-Farm Payrolls forecast 205K
- U.S. Unemployment rate forecast 4.9%
- U.S. Manufacturing PMI forecast 51