OIL: Crude Triggers Technical Selling, Large US Product Stock Builds Last Week
Oil prices were lower on Wednesday following prices rising further during early European trading and reaching important technical levels which triggered selling. Also EIA data showing a smaller-than-expected crude drawdown while product inventories continued to rise weighed on crude. The stronger greenback (USD BBDXY +0.4%) also pressured dollar-denominated oil.
- WTI rose to a high of $75.29/bbl and then sold off to a low of $73.16. It is down 1.3% to $73.32/bbl but still 2.2% higher this month. The trend structure remains bullish with key short-term resistance at $76.41. Initial support is at $72.70, January 3 low.
- Brent peaked at $77.89/bbl and then fell to a low of $76.04/bbl. It finished 1.1% lower at $76.20 but still up 2.1% in January to date. Initial support is at $75.53, January 3 low. Key resistance is at $79.50.
- The EIA reported US inventories fell 959k barrels last week, the seventh consecutive weekly decline, but product stocks continued to rise with gasoline up 6.33mn and distillate 6.07mn. Refinery utilisation rose 0.6pp to 93.3%. There may be drawdowns in coming weeks due to increased demand for heating oil and some crude production facilities frozen. Heating oil stocks fell 632k barrels last week.
- JP Morgan expects global oil demand in January to be 1.4mbd higher than last year. Generally an excess supply of oil is expected in 2025, but there are signs of less demand for sanction-affected Iranian and Russian crude.
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OIL: Crude Rallies On China Stimulus Plans & Syria Developments
Oil prices rallied on Monday supported by the release of China’s Politburo statement on the economy which indicated a “moderate loosening” of monetary policy, the first adjustment since 2011, plus likely additional fiscal stimulus. The fall of Syria’s Assad regime, which had been supported by Iran, to Turkish-backed rebels and the resultant increased uncertainty in the already unstable region as a result also buoyed crude.
- WTI rose 1.4% to $68.14/bbl to be up 0.2% in December. The benchmark rose to a high of $68.88 earlier. The bearish theme remains with initial support at $66.32, October 29 low, and the bear trigger is $63.90. Initial resistance is at $70.51, 4 December high.
- Brent is up 1.1% to $71.88/bbl after a high of $72.65. It is just 0.1% higher this month. Moving average studies highlight a dominant downtrend. Initial support is at $69.95 and resistance at $74.28.
- The change in China’s monetary stance is likely to mean further rate cuts ahead to support the domestic economy. Thus next year’s growth target is unlikely to be materially different from 2024’s. China’s demand for crude has worried markets for some time given weak domestic demand and its shift to EVs.
FOREX: China Policy Loosening Drives A$ Outperformance, RBA On Hold
Aussie outperformed on Monday following the release of China’s Politburo statement on the economy which indicated a “moderate loosening” of monetary policy, the first adjustment since 2011. As a result AUDUSD jumped from around 0.6380 to reach a high of 0.6471. It has now eased to 0.6436 to be up 0.7%. The USD index rose 0.15%.
- AUDUSD is still down 1.1% in December despite yesterday’s rally and the trend remains bearish. Initial support is at 0.6373, 6 December low.
- USDJPY rose 0.8% to 151.23, close to pre-US election levels. A bear cycle in the pair remains intact with initial resistance close at 151.20, 50-day EMA. It was breached earlier when it rose to a high of 151.35.
- The yen’s underperformance left AUDJPY 1.5% higher at 97.32 following a peak of 97.80, the highest since December 2.
- Kiwi also did well with the pickup in risk appetite with NZDUSD rising 0.6% to 0.5864. Ahead of today’s RBA decision, AUDNZD is up 0.2% to 1.0978 after testing 1.10.
- Equities were mixed with the S&P down 0.6% but Euro stoxx is up 0.2%. Oil prices are higher with Brent up 1.1% to $71.91/bbl. Copper rose 1.5% and iron ore is up to $106-107/t.
- The RBA is widely expected to leave rates unchanged at 4.35% today. The decision is announced at 1430 AEDT and Governor Bullock’s press conference is at 1530 AEDT.
US INFLATION: MNI US CPI Preview: Setting The Tone For 2025
Our preview of November's CPI report has just been published - PLEASE FIND THE FULL REPORT HERE: USCPIPrevDec2024.pdf
- Analysts’ forecasts for November CPI imply remarkably steady sequential inflation versus October, with the MNI median and average for core expected to show an unchanged 0.28% M/M.
- Combined with Thursday’s estimates for PPI inputs, core PCE is in turn seen moderating to between 0.18-0.25% M/M in November, vs 0.27% in October.
- Headline inflation is seen picking up slightly, to 0.27% (median) from 0.24% prior, with both food and energy prices accelerating slightly on a sequential basis.
- On an annual basis, that means steady Y/Y core (3.3%), with a modest uptick in headline (2.7% vs 2.6%).
- Following a largely in-line November Employment report, and particularly a 4-month high unemployment rate (4.25%), the bar to a pause at the December FOMC meeting is set high. There would have to be an extremely strong CPI reading to see a pause back on the table.
- An in-line CPI report, even an above-consensus one that is driven by upside surprises in volatile components (eg airfares), would keep the Fed on track to cut by 25bp that is over 80% implied by futures. However, this inflation round will have implications for 2025 rate guidance, as well as the latest set of FOMC quarterly projections.
