Despite a stronger dollar and weak equities, front month WTI jumped 4.53%, the highest daily gain since May 9th and, with a settle of 82.89, a definitive settle above the 80.00 barrier.
The general market consensus is that recent weakness has not been due to an imbalance in supply, but rather weaker demand forecasts.
Now let’s get this straight… in reaction to the downgrade of the creditworthiness of the U.S. by Standard & Poor’s, global equity markets tanked, gold surged to a record, oil sank and U.S. debt – the assets directly affected by S&P’s downgrade — rallied. Confused? The markets certainly are.
On Friday, the U.S. Bureau of Labor Statistics (BLS) showed a better than expected increase in employment. Nonfarm jobs rose by 117,000 in July and the unemployment rate fell by 10 bps to 9.1%. The BLS also upped the estimates for May and April by 112% (!) to 53,000 and by 156% (!!) to 46,000, respectively.
Which technical indicator did crude oil not break yesterday? We closed the Egypt/Libya contagion gap from February, the Relative Strength Index (RSI) has now crossed into over-sold territory of 18.33 and the Erlanger Trend Direction crossed from a red bar above the center line (a pull-back) to a red bar below the center line (a downtrend).
Domestic GDP growth for Q2 fell well below expectations. Is the recovery – already slow – grinding to a halt? Or was the drop in dollar terms due simply to a sharp sell-off in energy prices? While we would love to say the latter, the truth lies in parts of both.