WTI catches a FOMC bid in a soft market on U.S. inventory data

The price of oil continues to hang in the balance of geopolitical fundamentals, from the Middles East to trade relations between the US and various nations around the world. The most recent development has been positive, with the Xi and Trump both committing to a meeting at the G20 to discuss trade, which takes tariff increases off the table, for the time being at least. However, on Wednesday,  U.S. government figures revealed a bigger-than-expected drawdown in crude stockpiles for the first time three weeks which has weighed on the price of oil. The Energy Information Administration reported that U.S. crude supplies dropped by 3.1 million barrels for the week ended June 14 following two consecutive weeks of gains. 

FOMC outcome

CME FedWatch Tool shows 89% chance of a 25 bps rate cut in July

Meanwhile, the immediate attention has been on the Federal Open Market Committee's meeting, (FOMC) and Powell's presser which is drawing to a close. The FOMC has left rates and policy on hold, as expected, but signalled an easing bias, also expected, by dropping language saying it would be 'patient' on future policy adjustments and that they are closely monitoring and will act as appropriate. Following the announcement, Powell took to the stage and has said the following:

Fed’s Powell:

• Sustaining economic expansion is ‘one overarching goal’.
• Significant changes made to FOMC statement.
• To act as appropriate to sustain econ. expansion.
• So far, economy has performed ‘reasonably well’.
• Crosscurrents have re-emerged since may meeting.
• Have seen risk sentiment in markets deteriorate.
• Many FOMC members see better case for more accommodation.
• Many indicators on labour market remain strong.
• Consumption is running at a solid pace, has bounced back.
• Growth forecasts ask important details about growth consumption.
• Many FOMC participants cite re-emergence of cross-currents, weaker biz investment for seeing cuts.
• Important to not ‘overreact’ to single data point.
• Watching to see if uncertainties weigh on outlook.
• Fully intends to serve full term as Fed chair.
• All central banks focus on domestic mandate.
• Risk of waiting ‘too long’ on policy changes is not prominent.
• Fed tries to avoid acting prematurely.
• Forecasts show a prolonged inflation shortfall.
• Fed must be ‘really strong’ on the inflation target.
• Yet to engage in discussion on whether rate cut should be 25bps or 50bps.
• Rate cut dependent on incoming data, risk picture.
• Not targeting dollar, the Treasury is responsible for FX.
• Little support for to cut rates ‘now’.
• Fed will act promptly if needed to sustain expansion.
• Manufacturing, investment, trade have been weaker.
• Underlying fundamentals of the consumer are quite solid.
• We react to anything that could undermine dual goals.

Statement comparison:

FOMC main takeaways:

• Interest rate on excess reserves unchanged at 2.35%.
• Benchmark interest rate unchanged; target range stands at 2.25-2.50%.
• Drops language saying it would be 'patient' on future policy adjustments.
• Uncertainties have increased regarding outlook for sustained economic expansion.
• 9:1 policy vote, Fed's Bullard dissented because he wanted a rate cut
• To act as appropriate to sustain econ. expansion with a strong labour market, inflation near target
• Economic activity is rising at a moderate rate
• Household spending appears to have picked up but business fixed investment has been soft

Dot Plot

WTI levels

WTI has climbed through the 20-HR EMA, supported at the 50-HR EMA and remains better bid for the month of June so far having climbed from a low of 50.59 at the start f the month. However, the price remains around the 200 weekly EMA, balancing on a 61.8% Fibo. If the price can't sustain a bid, there are prospects for a correction to back towards the14th Jan 50.41 low and then the 26th November lows at 49.44. However, should bulls maintain control, 54.50 guards 55.20 meeting the 20-D EMA.