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Energy Commodities: Why They Could Be Weak This Week

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Part 2
Energy Commodities: Why They Could Be Weak This Week PART 2 OF 5

Energy Investors and the Impact of Jobless Claims Data

US initial jobless claims data

US initial jobless claims were at 241,000 for the week ended March 11, 2017, according to the United States Department of Labor report on March 16, 2017. The expectation was for 245,000 initial filings for unemployment benefits.

Energy Investors and the Impact of Jobless Claims Data

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Initial jobless claims show how many people are applying for unemployment benefits for the first time. The number has trended lower since the financial crisis, which indicates that the job market is improving. The lower number might also hint at improving consumer spending power, which could drive demand for crude oil–derived fuels such as gasoline and diesel. Natural gas is steadily becoming a major source of fuel for power stations. An improving economy could mean greater demand for electric power.

Impact of US dollar on crude oil and natural gas

US initial jobless claims data, a representation of the current state of the economy, could also be an important driver for the US dollar (UUP) (USDU). Last week, the US dollar fell 0.90%. US crude oil May futures rose 0.60%, while natural gas April futures fell 2.0% over the same period.

A stronger dollar makes crude oil expensive for oil-importing countries, which pressures crude oil (USL) prices. The opposite is also true. Natural gas wasn’t exported in large quantities outside North America until recently, so it hasn’t historically had a similar relationship with the US Dollar Index.

Impact on energy ETFs

Energy ETFs are also impacted by economic data and the relationship that crude oil (UCO) (USO) (OIIL) (BNO) and natural gas (GASL) (GASX) prices have with the US Dollar Index. These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the ProShares UltraShort Bloomberg Crude Oil (SCO), the iShares US Oil Equipment & Services (IEZ), and the Energy Select Sector SPDR ETF (XLE).

In the next part of this series, we’ll look at the relationship that crude oil and natural gas have with the S&P 500 Index.

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