US Crude Starts Week With Gains

US crude has moved upwards on Monday, trading at $49.75 in the North American session. Brent crude is back above the $50 level. The commodity is trading at $50.69, for a premium of $0.94. In economic news, it’s a very quiet start to the week. Monday’s only economic release, Labor Market Conditions Index, posted a decline of 4.9 points. As well, Fed chair Janet Yellen will deliver remarks at an event in Philadelphia. The markets will be listening carefully, looking for clues regarding a possible June rate hike.

A dismal Nonfarm Payrolls report on Friday caused sharp volatility in the currency markets, but oil was having none of it, as crude prices were almost unchanged in the Friday session. The April release fell to just 38 thousand, stunning the markets. Analysts could be forgiven for rubbing their eyes in disbelief at this figure, which was the lowest reading since August 2010. The estimate stood at 159 thousand, which was almost identical to the previous release. The dust hasn’t settled yet, and the NFP report could mean that a June rate hike by the Federal Reserve is no longer on the table. Some of the plunge in the NFP release is attributable to a strike by workers at Verizon, a major communications company. Still, even without this component, the indicator would have posted a gain of only 72,000, well short of expectations. In other US employment news, Average Hourly Earnings, which measures wage growth, posted a weak gain of 0.2%. The unemployment rate fell to 4.7%, but workforce participation dropped to 62.6%.

OPEC members met in Vienna on Thursday, but failed to reach any agreement on production targets. This follows a meeting in Qatar back in March, which also ended without an agreement. Given Iran’s consistent refusal to agree to any type of reduction or freeze, analysts had not expected any breakthroughs at the Vienna summit. With the world’s major oil producers continuing to function under the mantra “every man for himself”, it is the market that will determine the price of oil rather than any cartel of oil producers. That could mean a drop in crude prices, given the huge oversupply across the globe. After two failed meetings, OPEC’s credibility has been seriously shaken. One analyst went even further, with Oppenheimer senior energy analyst Fadel Gheit declaring “OPEC is finished. OPEC is over”. Meanwhile, Crude Oil Inventories posted another decline on Thursday, the third drop in the past four weeks. However, the reading of -1.7 million was considerably stronger than the forecast of -2.7 million. These declines have helped bolster the price of US crude, which punched above the $50 level last week and have not shown much movement since then.

WTI/USD Fundamentals

Monday (June 6)

• 10:00 US Labor Market Conditions Index. Actual -4.8 points
• 12:30 US Fed Chair Janet Yellen Speaks

*Key events are in bold

*All release times are EDT

WTI/USD for Monday, June 6, 2016

WTI/USD June 6 at 11:20 EDT

Open: 48.78 Low: 48.78 High: 49.89 Close: 49.75

WTI/USD Technical

• WTI/USD was flat in the Asian session. The pair posted gains in the European session and is steady in North American trade
•  50.13 is a weak resistance line
• 46.69 is providing support

Further levels in both directions:

• Below: 46.69, 43.45, 40.00 and 37.75
• Above: 50.13, 53.50 and 56.79

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