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Developing bullish picture needs to be confirmed by strong closes

Published Monday, June 6th, 2016

The market had two sets of data out of the US to deal with on Friday afternoon. They were the non-farm payroll figures and the oil rig count numbers from Baker-Hughes. The former was bullish and the latter was bearish. Non-farm payrolls increased by a mere 38,000 in May against expectations of a rise of 164,000, the lowest increase since September 2010. This was partly due to the month-old Verizon strike which has cut employment growth by 34,000. The net result was a serious weakening of the dollar. It lost 1.94% against the euro and 1.61% against a basket of major currencies.

A weak dollar is usually bullish for oil but the jump in oil prices on Friday afternoon was quickly countered by the latest US rig count by Baker-Hughes. It showed the number of rigs increasing by 9 to 325 last week. This is the first rise in 11 weeks and US rig counts have not risen by this much since the middle of December last year. Whether this is the beginning of the end as far as falling rig numbers are concerned remains to be seen but this decline was enough to push the price of WTI down 55 cents/bbl on the day and Brent 40 cents/bbl lower. Heating oil finished the day 207 points down and RBOB 271 points in the red.

The late sell-off ensured that the oil complex did not finish the week in positive territory as the five major contracts all lost value. The market is trying to make amends in the early hours of today’s trading and cheer up the bulls as the two crude oil contracts are some 50 cents/bbl above Friday’s settlement levels. This price strength is triggered by the relatively weak dollar and the ongoing sabotage attacks on Nigeria’s oil infrastructure. The latest development saw the Niger Delta Avengers claiming responsibility for two attacks on pipelines owned by ENI and one attack on a Shell pipeline. It also promised to reduce the West African country’s oil production to zero.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.