Firmer oil still poised for heavy weekly loss
Greenback retreats
SINGAPORE, Oct 5, (RTRS): Oil prices rose on Friday but remained on track for a second consecutive weekly loss after sliding on fears that slower global economic growth would hurt energy demand.
Benchmark Brent crude rose 42 cents, or 0.7%, to $58.13 a barrel by 1146 GMT. US West Texas Intermediate (WTI) crude rose 10 cents, or 0.2%, to $52.55.
However, Brent was down 6.1% on the week while US crude had lost 6%, representing the biggest weekly losses since July.
“Both are on track for hefty weekly losses and it will take a brave man to bet against the bearish tide,” said Stephen Brennock of oil broker PVM.
“As things stand, demand and supply-side developments are anything but supportive and there can be no happy ending for those of a bullish disposition.”
Weak US service sector and jobs growth data on Thursday added to worries about global oil demand and exacerbated fears that a protracted US-China trade war could push the global economy into recession.
Investors are now awaiting a further steer from US non-farm payrolls data due on Friday.
“Given that US growth is largely supported by a buoyant consumer whose confidence is built on a strong job market, this release will be critical in shaping expectations around future Fed policy, which will have spillover effects on oil markets,” said BNP Paribas global oil strategist Harry Tchilinguirian.
US job growth is likely to have picked up in September, with an accompanying increase in wages, which could assuage financial market concerns that the slowing economy is teetering on the brink of recession.
Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, on Thursday said the world’s top crude oil exporter had fully restored oil output after attacks on its facilities last month knocked out more than 5% of global oil supply.
“That Saudi restored its production back to original capacity sooner than expected means investors had to price out raised supply risks at a faster clip than would have otherwise been the case,” said Fawad Razaqzada, market analyst at futures brokerage Forex.com.
Razaqzada said that weak economic data, particularly from the US manufacturing sector, also raised fears for oil demand, “but now that some of these factors have been priced in, oil prices may fall less sharply going forward or at best start to form a base”.
France said that Iran and the United States have one month to get to the negotiating table, suggesting that Tehran’s plan to increase its nuclear activities in November would spark renewed tension in the region.
Meanwhile, the dollar slipped on Friday after earlier posting gains following a US jobs report that underperformed expectations but was solid overall, as investors remained cautious about political risk in the United States and ongoing trade negotiations with China. The greenback hit session highs against the yen and euro following the jobs report, after trading lower for most of the session.
But by afternoon trading, the dollar’s rally faded. Data showed that US non farm payrolls increased by 136,000 jobs last month. August data was revised to show 168,000 jobs created instead of the previously reported 130,000 positions. Economists polled by Reuters had forecast payrolls would increase by 145,000 jobs in September.
The unemployment rate dropped to a near 50-year low of 3.5%. “Given that market expectations have shifted after the ADP (private payrolls) and ISM (manufacturing and services), people were bracing for something worse than this. So this is in the ballpark of what is acceptable,” said Shaun Osborne, chief market strategist, at Scotiabank in Toronto.
“But there are other issues here for the dollar aside from the Fed easing, such as the US political backdrop. And we’re still looking at the funding tightness issue,” he added. A drop in US unemployment in September pushed traders of US shortterm interest rate futures on Friday to pare bets the Federal Reserve will cut rates at both of its two upcoming meetings. The jobs data was initially a big relief to dollar bulls after two weak reports this week that heightened US recession fears.
On Thursday, a survey from the US Institute for Supply Management (ISM) showed its non-manufacturing activity index falling to 52.6 in September, the lowest since August 2016. The non-manufacturing data came on the heels of ISM’s manufacturing survey on Tuesday that showed activity plunging to more than 10-year lows. The jobs report impact, however, was shortlived as investors grappled with US political tensions.
Diplomatic texts released late Thursday showed that US officials pressured their Ukrainian counterparts to launch investigations that could benefit President Donald Trump’s personal political agenda in exchange for a meeting between the two countries’ leaders.
The exchanges were released by Democrats in the House of Representatives as part of an impeachment investigation to determine whether Trump pressed Ukraine to probe former Vice President Joe Biden and his son, Hunter Biden, in connection with Ukrainian gas company Burisma.
Trade talks with China were also in focus, with both US and Chinese officials set to meet next week. In early afternoon trading, the dollar index was down 0.1% at 98.805, slipping against the yento 106.82 yen. The euro gained 0.2% versus the dollar to $1.0982.