Crude Holds 58.25 Ahead of a High-Stakes Fed Day

Monday’s risk-off tone followed through into Monday where crude posted another rough day settling at 58.25, off ~3% from Friday’s close.

Saudi Arabia lowered their OSP (“Official Selling Price”) which, thankfully, was met with some large Chinese purchases. Hopefully the large purchase China made yesterday put a floor under the market in the short term.

Fed Day Today & risk is higher than usual. With the Fed’s peculiar, and obviously choreographed, turn towards hawkish rhetoric creates more gray area than we are used to heading into these things.

Yesterday’s JOLTS number (Job Openings, Layoffs, Transitions & Separations) was pretty strong, and provides a small slice of vindication behind the Fed’s “labor isn’t as bad as it looks” tone they’ve taken on. There will bee BLS revisions in March, and there’s a chance the Fed’s out ahead of some positive revisions coming down the pike in BLS data. This would hip-check markets and the economy into stagflation territory pretty quickly.

Also yesterday, ECB leadership said they’d be comfortable with a hike at their next meeting which caused a bit of a stir. A hiking ECB should weaken the dollar and hopefully jar some buying in Crude, but it also could create a tougher path for a true Fed easing cycle.

We favor holding nothing into the Fed unless it is risk-defined. The trading environment was unpredictable before Powell & Co.’s hawkish turn, and now faces a hawkish Fed, ECB and some sharply higher inflation figures out of China last night. We rather go into the number ready to attack and play offense than be forced to manage risk.

Opportunities are unlimited capital is not. The Ag desk has good opportunities, which is an asset class that can be mostly free of Fed volatility today.

Last night’s API report showed Crude draws, but I don’t know who would be focused on EIA / API today. Estimates as follows [thousand bbls]:

Crude: -1,300 est
Gasoline: +2,043 est
Distillates: +1,150 est
Refinery Utilization: +0.15% est
Technical Analysis:

Futures held 58.25 but are on thin-ice heading into this Fed meeting. A break of that level and we’re likely heading for sharper volatility and possibly a touch at 55.00. On the upside, resistance at 59.25** is the first stop towards 58.87 and the 20-Day moving average at 59.00. While the long-side looks tough, the short-side at 58.00 into a Fed meeting is pennies in front of a steam-roller in this environment.