WTI continued to move lower on comments form the Bank of Japan (BOJ), reduced global demand, increased Iranian output, poor United States retail sales and an expected build (increase) in crude oil inventories tomorrow.
Fundamentals
The BOJ interest rate decision fell within expectations, however, in a press conference the bank did reiterate that the economic outlook is bleak. Japan is the third largest consumer of oil, and a continued contraction in the economy will have negative affects for global oil consumption. A report released on Monday by OPEC stated that demand for 2016 will be less than forecast, and that non-OPEC producers had continued to produce at record levels despite depressed prices. Data released has shown that Iranian production has been gradually increasing since the start of the year, as the country endeavours to claim back lost market share while under Western sanctions. US retail sales came in slightly below expectations, however, January’s figure was revised sharply lower. US consumers are choosing not to spend for the first quarter of the year, a worrying sign for traders who are looking for signs of a strengthening economy. Finally, the US Department of Energy (DoE) oil inventory report is expected to show another weekly build of crude oil stocks, further exacerbating oversupply.
Technicals
WTI has fallen below the $36.69 resistance level with the next level of support at $32.52.
What to expect tomorrow?
United States core CPI (inflation) and industrial production data, as well as the DoE oil inventory report. The CPI figure will be watched closely as any positive release will further the view that the Fed will hike rates sooner than later. The industrial production release is not a tier 1 (high impact) report, yet it will give in an indication of the strength within the economy. Despite the DoE forecast of a build in oil stocks, traders will pay close attention to the gasoline number to gauge demand at the pump.
- US core CPI (month on month) forecast at 0.2%
- US core CPI (year on year) forecast at 2.2%
- US industrial production forecast at -0.3%
- Crude oil inventories forecast at 3.328 m/b
- Gasoline stocks forecast at -2.611 m/b
- Distillates stocks forecast at -1.257 m/b
Geo-political developments
A statement was released yesterday that Russia will be pulling out of Syria. This move comes at the same time as the Russian oil minister meets with counterparts in the Middle East to push for OPEC and non-OPEC co-operation. The Assad regime is supported by Iran and opposed by Saudi Arabia. Russian actions could be seen as a sign of appeasement to strengthen relations between Moscow and Riyadh.