How Energy Commodities Take Cues from the Job Market



US initial jobless claims data

In the week ending May 20, 2017, US initial jobless claims rose 1,000 to 234,000, according to the US Department of Labor’s report on May 25, 2017. There was a rise in unemployment claims, but the numbers were far below the market expectation of 238,000.

In the week ended May 13, US initial jobless claims were at 233,000. The four-week moving average of US initial jobless claims data was at 235,250—at a record low since April 14, 1973.

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US growth drivers are clearly positive, according to the data above. Optimism about the jobs situation could increase consumer spending. Consumer spending is crucial to crude-derived fuels such as gasoline and diesel. At the same time, power stations’ dependence on natural gas has increased in the recent past, and a growing economy could demand more electric power.

Impact of the US dollar on energy commodities

The job market could also cause the Fed to increase interest rates further. Remember, the US dollar (UUP) takes important cues from the interest rate.

Below are the performances of US dollar, US crude oil (BNO) (USL (OIIL) and natural gas between May 18 and May 25, 2017.

  • US dollar: 0.6% fall
  • US crude oil July futures: 1.5% fall
  • Natural gas July futures: 0.2% fall

Any fall in the US dollar benefits commodity-importing countries because it makes the commodities cheaper for them. However, while the dollar could have a limited impact on natural gas prices, it could be crucial for crude oil prices.

The above dynamics are crucial for the following energy ETFs (among others):

  • 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)

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