After several weeks of consolidation, December crude oil futures broke sharply, reflecting the perception that a slowing economy will lead to a drop in demand for oil.
The initial catalyst behind the break was the release of the weaker-than-expected September U.S. Non-Farm Payrolls report. This report was postponed earlier in the month because of the government shutdown which may explain the recent sideways price action. Traders were not willing to play either side of the market until they were sure about the state of the economy.
The jobs report showed that the economy added 148,000 jobs. This was below the estimate of 180,000 new jobs. The unemployment rate did fall, however, from 7.3% to 7.2%. Missing the estimate may have been bullish for Treasury markets and stocks because it likely means the Fed will refrain from tapering its monthly monetary stimulus before 2014, but it was not friendly to the U.S. Dollar. Typically, a weaker dollar triggers increased demand from foreign investors, but under current market conditions, their buying hasn’t been enough to stem the selling pressure from fund traders and speculators.
With the perception that the U.S. economy is sluggish at best and may have been temporarily derailed by the government shutdown and debt ceiling debate, the shorting pressure is likely to continue until the supply and demand situation flattens out.
This week, data from the U.S. Energy Information Administration showed a rise…