Crude Oil Retreats after EIA Forecasts Increased U.S. Production in 2018

It was another light economic report day on Tuesday, giving investors the opportunity to react to speeches by FOMC Member Randal Quarles and Fed Chair Janet Yellen.

The IBD/TIPP Economic Optimism report came in above expectations at 53.6 versus a forecast of 51.2. The JOLTS Job Openings report was also better-than-expected at 6.09 million. The estimate was 5.98 million and the previous read was also 6.09 million.

In his first public speech, new Federal Reserve Governor Randal Quarles said that he believes the central bank needs to give serious consideration to what banking regulations need to be changed.

“We ought to be talking a fresh look at everything,” Quarles said during a question-and-answer session in New York. He said that “in a very short period of time” the Fed will be looking at ways to make the regulatory process more transparent. He refrained from discussing monetary policy.

Fed Chair Janet Yellen also gave a speech on Tuesday and she also did not discuss monetary policy. She said that ethical behavior from the Fed allows the public to trust it is acting on its behalf.

“The Federal Reserve’s very effectiveness in setting monetary policy depends on the public’s assured confidence that we act only in its interest,” she said. “We must act ethically and we must demonstrate our ethical standards in ways that leave little room for doubt.”

U.S. Equity Markets

The major U.S. equity indexes finished mixed on Tuesday with the Dow roaring back near the end of the session to post a small gain. After trading at or near all-time highs during the futures pre-market session, U.S. stocks traded flat-to-lower most of the cash market session, as the latest round of corporate earnings failed to attract enough buyers to sustain the early gains.

The blue chip Dow Jones Industrial Average closed at 23557.23, up 8.81 or +0.04%, the benchmark S&P 500 Index settled at 2590.64, down 0.49 or -0.02% and the tech-based NASDAQ Composite ended the session at 6765.84, down 20.60 or -0.30%.

Investors said the catalyst behind the selling pressure was the lack of clarity on tax policy.

Helping to boost the Dow was the strong media sector. It was supported by shares of Discovery Communications which jumped 1.3 percent, CBS shares which rose 1.14 percent and Disney stock which advanced 1 percent.

Gold

A stronger U.S. Dollar helped drive gold prices lower on Tuesday, erasing some of Monday’s gains. A weaker Euro helped drive the dollar up against a basket of currencies as investors priced in the developing divergence in the monetary policies of the U.S. Federal Reserve and the European Central Bank.

Mixed U.S. Treasury yields may have also contributed to the weakness in the gold market. The yield on the benchmark 10-year Treasury note fell to 2.313 percent, while the yield on the 30-year Treasury bond fell slightly to 2.776.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled lower on Tuesday as investors used the stronger dollar as an excuse to book profits after Monday’s steep run-up in prices. Traders may have also reacted to a report which predicted U.S. production would rise in 2018.

In other news, the U.S. Energy Information Administration forecast domestic production in 2018 to rise by more than previously expected.

In its monthly short-term energy outlook, the agency forecast that U.S. crude oil will rise by 720,000 barrels per day (bpd) to 9.95 million bpd in 2018. Last month, it expected 680,000 bpd year-over-year increase to 9.92 million bpd.