Crude Remains Buoyed as Dollar Gives Way

Crude oil prices are up by a fractionally building on gains from Wednesday’s two-week low at 66.85, and have come despite U.S. oil production has reached a record and with U.S. inventories having grown more than expected. Reports that Trump is set on pulling the nuclear deal with Iran, which would likely lead to Washington imposing new sanctions on Tehran, have underpinned crude prices.  The dollar which has recently generated headwinds for crude oil has pulled back which should help prices further gain traction.

Technicals

Crude oil prices continue to consolidate after having tested support which is the former breakout level at 66.66. Prices are hovering near the 10-day moving average at 68.08, with target resistance seen near the April highs at 69.56.  Momentum is flat to negative as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory which reflects consolidation.  The fast stochastic has generated a crossover buy signal, but is printing in the middle of the neutral range which also reflects consolidation.

FOMC Left Interest Rates Unchanged

FOMC left the rates unchanged with a 1.625% mid-point for the 1.50% to 1.75% band. The vote was unanimous. The policy statement noted both overall and core inflation have moved close to 2 percent. Market-based measures of inflation compensation remain low. On the economy the Fed reiterated it’s been rising at a moderate rate. Job gains remained strong, while growth in household spending moderate from its strong Q4 pace. Also, business investment continued to grow “strongly.” The FOMC also reiterated it expects further gradual adjustments in the stance of monetary policy. Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced. While the statement was expected dollar bulls were hoping for a more hawkish fed.

U.S. Challenger reported announced layoffs dropped

U.S. Challenger reported announced layoffs dropped 24.3k in April to 36.1k after rising 25.0k to 60.4k in March. April planned job cuts are down 1.4% year over year versus March’s +39.4% year over year clip. Most of the job cuts were in healthcare with 2.9k, followed by electronics at 2.7k. Announced layoffs in retail fell 27.2k, largely erasing February’s 28.9k gain. Telecoms followed with a -3.7k slide from +3.1k previously. Store closings were the main reason for the cuts, followed by restructuring and bankruptcy. Announced hiring dipped 0.7k to 13.8k.

U.S. initial jobless claims rose

U.S. initial jobless claims rose 2k to 211k in the week ended April 28 after tumbling 24k to 209k in the April 21 week. That brought the 4-week average to 221.5k from 229.25k. Continuing claims dropped 77k to 1,756k in the April 21 week, the lowest since late 1973, following the 33k drop to 1,833k previously which was revised from 1,837k.

Saudi’s Need Higher Oil Prices

Saudi Arabia, sees oil prices that are still too low to fully balance the books. The IMF claims that the Kingdom needs about 88 per barrel to balance its budget, up sharply from 70 per barrel last year. The sudden jump in the fiscal breakeven price is the result of an increase in spending expectations.

Saudi Arabia’s GDP growth rate is expected to rise to 1.7% this year, after shrinking by 0.5% in 2017. But, as the IMF warns, the improved outlook is largely due to the uptick in government spending.