Oil Bulls Bank on ‘Goldilocks’ US Jobs Data

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Benchmark oil prices are set to start the third-quarter on a positive note, reflecting expectations of better U.S. data with ISM manufacturing and Friday's closely-watched June jobs report amongst the highlights, though further evidence of a slowdown in China may limit gains, according to CNBC's latest survey of oil market sentiment.

Oil bulls are banking on the Labor Department number to be consistent with the view of a continued gradual recovery in the world's largest economy. However, with global investors still pre-occupied with the timing of Federal Reserve stimulus withdrawal, a payrolls beat by a wide margin may put risk assets under pressure as markets fear a blow-away number builds the case for a faster than anticipated wind-down by the Fed.

A Reuters' poll of economists is forecasting a payrolls gain of 166,000 in June, a slower pace of job creation compared to May's 175,000, while the unemployment rate is expected to dip to 7.5 percent.

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The best outcome for financial and commodities markets this week would be "goldilocks" data from the U.S. – not too strong to raise fears of an early stimulus roll-back while not too weak to suggest the recovery is losing steam, said Gaurav Sodhi, Resources Analyst at the Intelligent Investor in Sydney.

"It's a very strange time," Sodhi told CNBC's 'Squawk Box' on Monday. "If we see a number that suggests strong economic growth, then we may well see metal prices and commodity prices fall because of what the implications are further down the line for QE (Quantitative Easing). But if we see a weak number, markets might take that to mean that economic growth is slow."

Sodhi added: "There are times where the fundamentalists get it right and have the upper hand, and there are times when the guys following monetary policy have the upper hand. I throw my hands up in the air because I'm just not sure which party is going to win that battle."

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On balance, the bulls may bid prices higher in defiance of the softer oil market fundamentals of weaker demand and well-supplied markets. Almost three-quarters of respondents polled, or eight out of 11 (about 73 percent), said prices will rise this week.

Higher perceptions of supply threats on back of political instability in Egypt, Turkey, Syria and Iraq may contribute to driving the risk premium in the oil price higher.

Egypt was locked in a tense standoff on Monday after millions of protesters swarmed into the streets to demand the resignation of Islamist President Mohamed Mursi and militants set the ruling Muslim Brotherhood's headquarters on fire.. The demonstrations, which brought half a million people to Cairo's central Tahrir Square and a similar crowd in the second city, Alexandria, were easily the largest since the Arab Spring uprising that ousted Hosni Mubarak in 2011.

"We may yet see some upward pressure" on oil prices if anti-Mursi protests escalate, said Alastair Newton, Senior Political Analyst at Nomura, though security forces will keep the strategically-vital Suez Canal open for international shipping which includes oil tanker traffic transiting the waterway. "The next 48 hours will be critical," he added.

Meanwhile, two respondents forecast a decline while one expects prices to remain unchanged, according to this week's CNBC poll. Brent crude suffered its third consecutive quarterly loss between April to June, the longest stretch of quarterly declines in 15 years.

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Though pessimistic respondents were in a distinct minority in this week's poll, the bears have the upper-hand early Asia on Monday. Both Brent crude and U.S. oil futures declined modestly (by a little over 40 cents a barrel to $101.68 and $96.15 respectively) after data released from China and Japan painted a mixed picture.

Official and private sector forecaster HSBC's data showed factory activity in China slowed in June from a month earlier due to weaker domestic and external demand while the Bank of Japan's Tankan survey of manufacturers' sentiment turned positive for the first time in two years.

(Read More: China: From Driver to Drag on Global Growth)

"Falling orders and rising inventories added pressure to Chinese manufacturers in June. And the recent cash crunch in the interbank market is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for SMEs. As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months," said HSBC's Chief China Economist, Qu Hongbin.