Schork Oil Outlook: All Eyes on OPEC

Energy prices were weak last week-oil markets started the week in the mid $70s, but finished in the high $60s. At the same time gas markets moved from the low $3s to the mid $2s. As far as this week goes, all eyes will be on OPEC.

As U.S. and Canadian markets reopen after yesterday’s Labor/ Labour Day holiday, the virility of the alleged recovery remains in doubt. In this vein, Friday’s U.S. ‘jobs report’ failed to shed any meaningful light on the debate… the report’s lagging indicator status notwithstanding.

For starters, the household unemployment rate reversed in August. In July the rate unexpectedly declined to 9.4% as 422,000 workers left the labor force. In August the rate resumed its upward trajectory and climbed to 9.7%. That is the highest level since June 1983 (10.1%). On top of that, when you take into account the number of workers who are “discouraged” by the prospects of finding employment and have thus far given up, as well as those working part-time who would prefer full-time employment, then the true unemployment rate is now approaching 17%, i.e. 1-in-6 workers. Furthermore, initial unemployment insurance claims have stopped falling.

The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage
The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage

Initial claims peaked at the end of March at 674,000 and trended lower through July. That decline came to a conspicuous stop last month. As of the week ended July 31st, the four-week average in claims bottomed at 556,500. As of August 28th the four-week average was back up to 571,300. In other words, the prospects of record unemployment (10.8% November and December 1982) are real.

Looking at employment as a percent of the population, rather than as a percent of the labor force helps smooth out noise created by the accounting of discouraged and underemployed workers. In this light, the employment-to-population ratio dropped to 59.2% last month (see Chart of the Day in today’s issue of The Schork Report). This ratio has declined by 3.5 points since the start of the recession in December 2007 and is at the lowest level since April 1984.

The establishment data showed a reduction of only 216,000 in August.

That was the good news, on the other hand, July job losses was revised up from 247,000 to 276,000 and the June loss was revised up from 443,000 to 463,000. The establishment data is a much more reliable metric, yet the BLS still makes considerable corrections to the data two months after the initial release.

Kind of makes you wonder why oil traders put so much emphasis on the weekly DOE numbers. The August report was the twentieth straight decline, but it was the smallest since August 2008. While the loss of a couple of hundred thousand jobs is not good, it was about the only bright spot in Friday’s report. The number of hours worked was unchanged at 33.1 and are near the lowest level since records began in 1966. This is an important indicator, whereas the unemployment rate and payroll data are lagging indicators, the hours worked data is more of a coincident indicator.

Therefore, if economic activity is really increasing, we would expect the workweek to increase as well. It did not. We would also expect factory overtime to increase. It did not. Average hourly earnings rose sharply, up 6 cents or 0.3%. Over the last 12 months earnings have increased by 2.6%, but because of the shortening of the workweek, the weekly earnings have risen by a mere 0.8%.

Bottom line, payrolls have now fallen by a record twenty straight months. That is the longest such streak since the BLS started keeping records in 1939. So far, 6.93 million Americans have lost their job in this recession. That too is the largest amount since the Great Depression.


Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.