Unemployment Claims Impact Energy Commodities

US initial jobless claims data

US initial jobless claims were at 236,000 for the week ending May 6, 2017, according to the US Department of Labor’s report on May 11, 2017. The expectation had been for 245,000 initial filings for unemployment benefits.

Unemployment Claims Impact Energy Commodities

In the week ending April 29, US initial jobless claims were at 238,000. The four-week moving average stood at 243,500. US initial jobless claims below last week’s number and its four-week moving average could be a positive indicator for the economy.

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.

Consumer spending power can 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 the US dollar on crude oil and natural gas

US unemployment claims 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 impact the US dollar. The Fed kept interest rates unchanged in its latest review on May 3, 2017, but it’s expected to hike rates twice this year.

In the trailing week, the US dollar rose 0.8%. US crude oil June futures rose 5.1%, while natural gas June futures rose 6% during the same period. A stronger dollar makes crude oil costlier for oil-importing countries, which could have a negative impact on crude oil (USL) prices. The opposite is also true. Natural gas wasn’t exported in large quantities outside North America until recently. Historically, natural gas hasn’t had a similar relationship with the US Dollar Index.

In the trailing week, crude oil and natural gas both moved inversely of the US dollar, as the above graph shows.

Impact on energy ETFs

Energy ETFs can also be 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.