The word “gradual" was all the markets had to hear. The Fed as expected, raised interest rates but signaled rate increases in the future would come at a gradual pace. That assurance was enough to cause the stock market to soar and the dollar to pull back and added momentum to oil that received some friendly data from The Energy Information Administration (EIA). That means that gradually the oil glut should start to disappear.
For WTI to turn bullish it will need to break above some resistance levels now. Monday’s high at $48.65, for example, is such a level since it is located above the 200-day moving average. If oil were to get there, it may trigger a short-covering response from the bearish camp. That being said, the buyers would do very well to push the price of WTI back towards the old key support level of $50.80, which may turn into resistance upon re-test. Further resistance is seen at $52.50, the last support level pre breakdown.
The big March snowstorm that is going to bury the northeast, as well as cold and snow in the midwest, is already having an effect on a lot of different markets in a lot of different ways. We saw oil and products struggle as grounded airlines and snowbound travelers will reduce the demand for jet fuel and gasoline. We also saw electricity and power prices soar and a rally for natural gas as we get the demand we failed to get in February now in March.
OPEC said on Tuesday oil inventories had continued to rise despite the start of a global deal to cut supply and raised its forecast of production in 2017 from outside the group, suggesting complications in the effort to clear a supply glut.
Traders appear to be in wait and see mode at the start of the week, with attention firmly on the central bank meetings this week, most notably the Federal Reserve on Wednesday when we’ll find out if policy makers successfully guided market expectations in the right direction or went too far.
Crude oil futures are still reeling from last week’s massive crude oil build and another jump in U.S. rig counts. It was a double-eight as oil rigs increased by eight and the eighth week in a row that the rig count has risen.
The U.S. dollar is higher against most major pairs as the two day Federal Open Market Committee (FOMC) meeting is expected to bring forth the first U.S. interest rate hike of 2017. The FOMC statement will be released on Wednesday, March 13 at 2:00 pm EDT (7:00 pm GMT) with a scheduled press conference from Fed Chair Janet Yellen starting at 2:30 pm. The U.S. central bank is forecasted to hike the benchmark rate 25 basis points at <1.00%.
The crude oil bull market in the short term is in critical condition and needs to close back above $50 a barrel to try and negate this week’s massive downside break out. There is still hope that the technical damage done to this market can be repaired but it may take a decisive close back into the old sideways range to try and mount a comeback.