MARKET WATCH: Oil prices continue climbing in uncertain markets

Oil prices stumbled initially following a reported increase in US unemployment June 7 but managed to climb higher before trading sessions closed.

The latest data on US nonfarm payrolls were the market’s main focus at the end of last week. “The contradiction between the better-than-expected 175,000 jobs added [Wall Street’s consensus was for a 163,000 gain] and the slight jump in the unemployment rate from 7.5% to 7.6% had markets unsure of how to react,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Oil prices initially sank lower, as perhaps participants focused on the latter number, raising fears that the US recovery was weakening and…would translate into weaker crude oil demand, which would be especially concerning given strong growth in US crude oil production.”

However, he said, “The market soon regained some composure, managing to win back more than its initial losses, making it appear as though the market turned towards favoring the more optimistic interpretation of the numbers.”

Increased job growth indicates a strengthening labor market and stronger economy. “But a weaker unemployment rate (the Federal Reserve Bank’s stated target variable) implies continued Fed monetary stimulus, fuelling speculative activity as well as a weaker dollar—both price positive,” Ground said.

Disappointing data out of China over the weekend “lent oil markets a negative bias” in early trading June 10 “although the reaction appears relatively muted,” Ground reported. “It would appear the market is perhaps more comfortable with the slow growth momentum story for China—with April’s price correction having perhaps largely discounted this more constrained outlook for Chinese crude oil demand. Net imports of crude oil for May were 5.6 million b/d, up a meager 0.3% month-to-month and down 5.8% year-to-year. Average monthly net imports for the year so far are largely in line with average monthly net imports over the same period last year.”

In other news, equity market prices briefly increased in early trading June 10 after Standard & Poor’s Ratings Services raised its outlook for US government debt to “stable” from “negative,” citing an improving economy. After a few minutes, however, all major US indexes declined. Oil prices were down, and the price of gold increased. S&P downgraded the US credit rating in 2011 during a congressional fight over raising federal spending limits.

Energy prices

The July contract for benchmark US light, sweet crudes advanced $1.27 to $96.03/bbl June 7 on the New York Mercantile Exchange. The August contract climbed $1.29 to $96.27/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.27 to $96.03/bbl.

Heating oil for July delivery increased 2.17¢ to $2.89/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 2.06¢ to $2.87/gal.

The July natural gas contract inched up 0.1¢ but closed essentially unchanged at a rounded $3.83/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued falling, down 7.8¢ to $3.77/MMbtu.

In London, the July IPE contract for North Sea Brent increased 95¢ to $104.56/bbl. Gas oil for June added $9.50 to close at $875.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 71¢ to $101.64/bbl. So far this year, OPEC’s basket price has averaged $105.61/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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