Energy prices were weak (!) last week: The liquids fell by >10% week-on-week due to riots in Greece, possible credit troubles in Spain, a hung parliament in the U.K. and an oil spill in the Gulf of Mexico. The bulls were attempting a rally in electronic trading on Sunday night, but is it a comeback or a dead cat bounce?
Tomorrow’s wholesale inventories and Friday’s retail sales figures will boost or break the markets.
On Friday the Bureau of Labor statistics released its latest employment data, with total non-farm payrolls rising by a larger than expected 290K. Analysts were expecting a 190K increase, and the previous month’s 162K increase was revised higher to 230K. And yet the markets reacted weakly, especially the commodity futures. What gives?
Ostensibly, very little.
The manufacturing sector, which contributes heavy energy demand, rose for the fourth consecutive month to 11.64 million, its highest level since August 2008. What’s more, the 44K month on month increase was the largest since October 1997.
Similarly the goods producing sector saw a 65K increase in jobs, its largest since February 2006. The knock-on effect is obvious: not only do we need more energy to produce goods, we need more energy to transport it. Truck transportation jobs reversed March’s 2.4K drop to rise by 1K.
The energy complex itself is showing signs of strength — the number of refinery workers in March (the latest data available) rose to 74.5K, its highest value since August 2008. The number of workers in oil and gas extraction and coal mining rose by 0.8% and 0.25% respectively.
Even a bearish number of natural gas — the number of workers at electricity generation facilities using fossil fuels, which fell by 0.2K — was balanced out by a 0.5K increase at facilities using nuclear energy. As consumers start using more electricity, increased jobs at fossil fuel facilities will increase in turn.
Then again, the bears can counter that the unemployment rate rose by 0.2% to 9.9%, due to discouraged workers returning to the workforce but not yet finding a job. We believe this is bullish, confidence in the economy is returning and employers will likely increase hiring to take advantage of a motivated workforce.
The bottom line is that the market sold off on a very bullish report. Hyperventilating news anchors aside, the economy is in far better shape today than it was when traders pushed the DJIA above the 9,000 mark. With regards to the worries in Europe, the chances of Spain defaulting are slim to none and a contingent of Europe’s smartest (read: richest) countries have already stepped in to offer support for Greece.
Today’s issue of reminds energy traders that it took the near collapse of the entire free market financial system to get crude oil prices below $70. The bears may be making a mountain out of a mole-hill.
Stephen Schork is the Editor of and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.