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US Non-Farm Payrolls Data Impact Energy Commodities

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US non-farm payrolls

US non-farm payrolls rose by 98,000 in March 2017, according to the U.S. Bureau of Labor Statistics’ report on April 7, 2017. The expectation had been for a rise of 180,000.

Lower non-farm payroll jobs added could mean a slowdown in hiring and economic activity. It could translate into less fuel consumption, which is bearish for crude oil prices (USO) (BNO) and natural gas prices. Crude oil is used to make transportation fuels like gasoline and diesel, while natural gas is used for power generation.

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Impact of the US dollar on crude oil and natural gas

US non-farm payrolls data could also be an important driver for the US dollar (UUP) (USDU). Employment data impact the Fed’s interest rate decisions. The Fed’s benchmark interest rate can affect the US dollar.

Last week, the US dollar rose 0.8%. US crude oil May futures rose 3.2%, while natural gas May futures rose 2.2% during 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.

Last week, crude oil moved independently of the US dollar, but natural gas moved inversely, as the above graph shows.

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. 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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