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Crude Oil and Natural Gas: Key Quantitative Drivers

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Part 2
Crude Oil and Natural Gas: Key Quantitative Drivers PART 2 OF 4

Unemployment Claims Falling: Will Energy Commodities Rise?

US initial jobless claims data

US initial jobless claims fell by 4,000 to 232,000 for the week ending May 13, 2017, based on the US Department of Labor’s report on May 18, 2017. The market had expected initial filings for unemployment benefits to stand at 240,000.

Unemployment Claims Falling: Will Energy Commodities Rise?

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US initial jobless claims were at 236,000 for the week ended May 6. The four-week moving average fell by 2,750 and stood at 240,750. A fall in the number of people applying for unemployment benefits for the first time indicates an improving job market and an improving economy. An improving jobs situation is positive for consumer spending.

Consumer spending can drive demand for crude-oil–derived fuels such as gasoline and diesel. Power stations are increasingly using natural gas as a major source of fuel. An improving economy could also mean greater demand for electric power.

Impact of the US dollar on crude oil and natural gas

The US dollar (UUP) (USDU) could take cues from the situation in the job market. Employment figures are a key factor in the Fed’s interest rate decisions. Rising interest rates could be an important bullish driver for the US dollar. In its latest review on May 3, 2017, the Fed maintained interest rates at current levels. However, analysts expect the Fed to raise rates two more times this year.

Between May 11 and May 18, the US dollar has fallen 1.8%. During the same period, US crude oil July futures gained 3%, while natural gas June futures fell 5.7%. A weaker dollar could support crude oil (BNO) (OIIL) (USL) prices, as it decreases the cost for oil-importing countries, and vice versa. Earlier, natural gas exports outside North America were limited. Historically, natural gas has not witnessed a similar relationship between crude oil and the US dollar.

Impact on energy ETFs

Thus, due to their effect on energy prices, economic data could affect the following energy ETFs:

  • 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)
  • the Energy Select Sector SPDR ETF (XLE)

In the next part of this series, we’ll explore the quantitative relationships between crude oil and natural gas and the major equity indexes.

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