Oil has 3rd weekly gain, but price stuck at ‘OPEC-cut’ highs

By Barani Krishnan

Investing.com -- One of the craftiest moves in recent times to boost the oil market should result in a weekly gain at least in crude — which is exactly what OPEC+ got.

But nothing more.

Crude prices did not advance beyond Brent’s initial rally to $86.44 per barrel this week and WTI’s surge to $81.81, which came on the back of the announcement that the world’s largest oil producers will collude to cut a further 1.7 million barrels from daily output after an earlier decision in November to reduce 2.0M barrels per day.

New York-traded West Texas Intermediate, or WTI, settled Thursday at $80.70 per barrel, up 9 cents, or 0.1%, from the previous session. For the week, the U.S. crude benchmark rose 6.6%, extending the back-to-back gain of 9.3% and 3.4% in two prior weeks. Just before the three-week stretch, WTI lost 13% in just one week.

Brent settled at $85.12, up 13 cents, or 0.2%. The global crude benchmark finished the week up 6.7%, after consecutive gains of 6.4% and 2.8% in two prior weeks. Before that, Brent lost 12% in one week.

The inability of crude prices to go any higher despite a bullish weekly report on U.S. supply-demand issued Wednesday was telling to some of the larger economic worries in the market.

“Sustainability below $79.60 can push WTI towards $78.50, followed by $77.60,” said Sunil Kumar Dixit, chief technical strategist at SKCharting.com. “The $77.60-$77.50 is an important gap area that remains to be filled up.”

For now, the deeper OPEC+ output cut announced this week dominates the market narrative in oil, Craig Erlam, analyst at online trading platform OANDA, wrote on Thursday as U.S. markets wound up the week earlier than usual due to the Good Friday holiday.

The latest output reduction by OPEC+ — which groups the 13-member Saudi-led Organization of Petroleum Exporting Countries with 10 independent oil producers steered by Russia — is “substantial” as the combined cut from November removes on paper some 3.7M barrels daily that are equivalent to 3% of world supply, Erlam wrote.

But he also stressed that it was a “preemptive” cut — using the oil producing alliance’s own language — that he said “left traders questioning whether this was just a price issue or a belief that the global economy is heading for a difficult period.”

U.S. jobless claims jumped their most in 17 weeks, according to data on Thursday that emitted more recession signals even as it indicated relief for the Federal Reserve which needs employment and wage growth to cool in order to curb the worst inflation in four decades.

The number of Americans applying for jobless benefits stood at 228,000 during the week to April 2, the highest since the week ended December 4, the Labor Department said in its weekly update on jobless claims which provide a stipend to the unemployed.

For nine weeks in a row, claims have topped 200,000. While it indicated that more Americans were getting laid off than before, the Labor Department said changes in its claims reporting methodology had also probably led to a spike in the data.

“A multiplicative seasonal effect is assumed to be proportional to the level of the series,” the Labor Department said. “A large increase in the level of the series will be accompanied by a proportionally large seasonal effect.”

Notwithstanding that change, the latest spike in unemployment raised alarm bells among economists worried about recession, as much as it was welcomed by the inflation fighters at the Fed.

Prior to the jobless numbers, company hirings rose by just 145,000 last month versus the February growth of 261,000, private payrolls processor ADP said. That was even below the 200,000 growth forecast on the average by economists polled by U.S. media.

“Our March payroll data is one of several signals that the economy is slowing,” Nela Richardson, chief economist at the ADP, said in a statement released earlier this week. “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”

The private hiring data came on the heels of another report on U.S. job openings, which showed the smallest growth in almost two years. Job openings slipped to 9.9M in February, growing at their slowest pace since May 2021, the Labor Department said in that report released Tuesday.

The two reports made print before Friday’s scheduled release of the all-important labor update for the United States: the non-farm payrolls, or NFP, report.

The March edition of the NFP is expected to show a growth of just 240,000 versus February’s 311,000. If correct, it could be sharply lower than January’s 517,000 spike that raised new worries about inflation in the United States.

Inflation, as measured by the CPI, or Consumer Price Index, hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 6% per annum in February, for its slowest expansion since October 2021. Even so, that was three times the Fed’s target of 2% per annum.

The Fed has increased interest rates by 475 basis points over the past 13 months, taking them to a peak of 5% from just 0.25% after the COVID-19 outbreak in March 2020.

The central bank’s main guide for rates has been the monthly NFP report. The labor market has been the juggernaut of U.S. economic recovery from the pandemic, with hundreds of thousands of jobs being added without fail since June 2020 to make up for the initial loss of 20M jobs to the pandemic. The Fed has identified robust job and wage growth as two of the key drivers of inflation. Average monthly wages have grown without a stop since May 2021.

“Crude prices have held onto the initial gains and have been in consolidation since having failed to break beyond the highs of the range they traded in from early December to mid-March,” Erlam added.

“There have been some bullish calls on oil prices but it’s worth remembering that there’s a reason oil prices were struggling to fully recover the losses in the aftermath of the banking turmoil. Tighter credit conditions mean a slower economy, even recession, and lower demand. The extent of that at this point isn’t clear though and only when it is can we properly judge what the price impact of the cuts is.”

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