WTI Crude Rallies After Early Weakness: Fed Meeting and API Draw Drive Sentiment

ALERT JAN CONTRACT EXPIRY DEC 19th. ROLL TO FEBRUARY ADVISED.  

WTI Crude Oil Futures (February)

Yesterday’s Settlement: 69.95, down -0.65 [-0.91%]  

WTI Crude Oil futures traded sharply lower yesterday, making a low of 68.81 (-1.48, -2.11%) around 9:45am cst. From there, futures rallied +1.14 to settle at 69.95; ending the day lower by -0.64. The sell-off was stoked by weak Chinese economic data and a global risk-off trade that drove equities and metals lower as well.   

Today, futures are higher by by +0.73 [+1.05%] to 70.37.

Last night’s bullish API report showed a strong draw in crude inventories and is helping to buoy prices this morning. With the Fed meeting today, volatility across assets is likely to pickup – there is likely some position squaring this morning that is also aiding price. 

Last night’s API report was as follows [thousand bbls]:

• Crude: -4,700
• Gasoline: +2,400
• Distillates: +744

Estimates for today’s EIA report are as follows [thousand bbls]:

• Crude: -1,700
• Gasoline: +2,000
• Distillates: +1,100
• Refinery Utilization: +0.00%

The key fundamental event today is the FOMC meeting. Traders are assuming with some certainty that the Fed will cut 25bps today, the keys to the meeting lay in the updated Fed projections and Powell’s rhetoric through the press conference.  

There is a strong possibility that the fed will issue a more cautious outlook in regards to future rate cuts. The “cut and pause” scenario as traders are calling it. This may cause some indigestion in financial markets as traders digest the new interest rate environment. Risk sentiment across financial markets are flashing warning signals of being over-extended; the possibility of a sizeable risk-off move through the end of the year is a risk that traders should keep in the back of their minds.

Technical Analysis

Yesterday’s rebound off the lows restored some confidence in our bullish tilt towards crude as the morning sell-off was fairly deflating. Volatility will likely be heightened today with the Fed meeting and traders should size positions accordingly. In the event of a global risk-off trade, if crude were to get caught in the wash to the downside, we would like to have ammo to attack rather than be caught playing defense.

Today’s pivot and point of balance is stationed at Monday’s low of…

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