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Crude falls further after weak non-farms

Last updated 7/6/2012 9:36 AM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

Crude fell in early trade today with Brent down 1.5% and WTI 2% lower ahead of the US Non-Farm Payroll release. This morning’s moves were a continuation of yesterday’s late trade which saw oil pull back sharply after an early rally. It looked as if traders were anxious to book profits and reduce long-side exposure ahead of today’s important jobs number. There were also signs that a two-week strike by Norwegian oil workers may be coming to an end, while the initial positive effects following yesterday’s concerted central bank easing was also fading. Prices have risen sharply over the past week as crude appeared to have found support after falling heavily since the beginning of May. The rally coincided with positive news from last week’s EU summit together with the imposition of EU sanctions on Iran. This involves an embargo on oil exports from the country, together with a ban on insuring Iranian oil tankers. In the FT’s Commodities Note today, it wrote that refiners had been wrong-footed by the effects of EU sanctions and were now “scrambling for supply.” There has been a marked increase in demand from refiners for low quality Russian crude from the Urals. This increase has seen the Urals product trade at a premium to higher quality Brent crude for only the second time in ten years. However, this premium should erode once refiners readjust to available supply.The paper also quoted an executive at a major oil company who said that by the end of July Iran’s oil exports were expected to be 1.1 million barrels per day (mbpd). This compares with exports of 2.1 mbpd in 2011. But if Iran can find buyers for its oil amongst countries unaffected by sanctions, then crude prices could moderate as the world will continue to be adequately supplied given current demand. After all, Saudi Arabia continues to pump out a record 10 mbpd. Crude fell further following another disappointing non-farm payroll release. This came in at 80,000 and was well below the “whisper” number of 120,000. Unemployment continues to be a major concern for the US, and could prove to be a serious problem for President Obama ahead of the November election. Yet today the feeling was that as bad as today’s number was, it wasn’t weak enough to persuade the US Federal Reserve to announce further stimulus next month.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.