Article Summary

  • The oil market suffered a fourth consecutive week of losses despite OPEC+’s efforts to reduce oil production, with New York-traded West Texas Intermediate (WTI) crude for June delivery showing a final post-settlement price of $70.04, down 1.8% on the week.
  • The spot price of gold slid 0.3% as investors increased their risk appetite amid surging interest in meme coins.
  • The US labour market added 253,000 jobs in April, above economists’ expectations and leading to speculation that the Federal Reserve may not pause on raising interest rates at its June 14 decision on rates, despite an anaemic 1.1% growth in the country’s gross domestic product in the first quarter and concerns about a potential U.S. debt default.

It’s another week of losses in the energy market as the black liquid is on its fourth consecutive week of losses despite OPEC+’s attempt to reduce oil production. The yellow metal as well posted losses during the week, as investors increase their risk appetite amid surging interest in meme coins.

New York-traded West Texas Intermediate (WTI) crude for June’s delivery showed a final post-settlement price of $70.04 on Friday. For the week, the U.S. crude benchmark showed a loss of 1.8%.

Over the past four weeks combined, WTI was down 15%. London-traded Brent for July delivery showed a final post-settlement price of $74.17 on Friday. The global oil benchmark showed a drop of 1.5% on the week and almost 14% over the past four weeks.

The spot price of gold, which reflects physical trades in bullion and is more closely followed than futures by some traders, officially settled at $2,010.88. during the week, spot gold slid 0.3%.

What You Should Know

The Organization of Petroleum Exporting Countries and its allies, a cartel better known as the OPEC+, is counting on more crude buying from China in the second half of the year than it initially forecast, despite a slowing in the world’s number two economy.

The cartel also thinks the greater risk to the oil trade is political wrangling over the U.S. debt ceiling crisis. Some analysts believe OPEC+ may have got its bets mixed up.

Data out of Beijing on Thursday showed Chinese consumer inflation barely grew in April, while producer inflation sank to its weakest level since the peak of the pandemic in 2020.

Chinese trade data from earlier in the week was also disappointing, with a 1.4% decline in imports and an 8.5% drop in export growth. It was a testimony of an economy struggling to gallop despite various stimuli put into place since China abandoned all caution over COVID-19 early this year.

The sluggish China data may have been what prompted energy traders to shrug off OPEC+’s latest monthly report which had a slight upgrade on Chinese oil demand. China is now expected to require 800,000 barrels daily, up from the 760,000 forecasts last month, the 13-member Saudi-led OPEC+ said.

“Oil appears to have stabilized in the lower trading range it briefly entered into in March, between $70-$78 in Brent or roughly $64-$74 in WTI,” Craig Erlam, an analyst at online trading platform OANDA, said, citing a “less inspiring Chinese Covid recovery” as one reason for the malaise.

Meanwhile, in the United States, employers added 253,000 jobs in April, way above economists’ expectations, while the jobless rate moved a notch lower to 3.4% from a previous 3.5%, according to Labor Department data that appeared to make it harder for the Federal Reserve to stop raising interest rates.

Economists polled by U.S. media had expected a jobs growth of just around 180,000 for April, from a previously published 263,000 for March which the Labor Department revised down to 165,000.

Fed officials have said employment and wage growth have to cool significantly to effectively restrain the worst inflation the United States has experienced in four decades.

The U.S. labour 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 20 million jobs to the pandemic.

Average monthly wages have also grown with barely a stop since May 2021. The Fed has identified robust job and wage growth as two of the key drivers of inflation.

U.S. Inflation, as measured by the Consumer Price Index, or CPI, hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4.9% per annum in April for its slowest expansion in two years. The Fed’s favourite price indicator, the Personal Consumption Expenditures (PCE), grew by just 4.2% in March.

Regardless, these numbers are more than twice the Fed’s appetite for inflation, which stands at just 2% per annum. The central bank has raised rates 10 times since the end of the coronavirus pandemic in March 2022, adding a total of 5% to the previous 0.25%.

Until the release of the overwhelmingly strong jobs data for April, there had been strong speculation that the Fed would stay at its June 14 decision on rates.

Many are still expecting a Fed pause next month, however, some are not so sure. Economist Adam Button said in a post on the ForexLive forum, “This [jobs number] is undoubtedly hawkish and puts the Fed in a real bind.

The Fed wants to pause and may soon even need to cut but the jobs market isn’t cooperating. Now, jobs are certainly a lagging indicator, but 3.4% unemployment is extraordinarily tight, and this is the 13th straight month of non-farm payrolls beating the consensus estimate.”

Notwithstanding the jobs numbers, an advance reading for U.S. gross domestic product in the first quarter showed an anaemic 1.1% growth on the year versus 2.6% in the fourth quarter of 2022. A crisis of confidence among regional and mid-sized U.S. banks, which first broke out in March, has also resurfaced.

Adding to those are concerns about a potential U.S. debt default, the first-ever, due to the impasse between Republican lawmakers in Congress and the Biden administration concerning having the debt ceiling raised.

Erlam of OANDA sums up the impasse by stating, “You could throw U.S. debt ceiling drama and default into the mix but I’m only inclined to focus on remotely plausible events at this stage.”

Oil Outlook

If WTI regains its upside momentum, it could move towards $75 in the coming week; otherwise, it could slide to below $70, possibly even threatening $60 support, Sunil Kumar Dixit, chief technical strategist at said.

Dixit observed that the U.S. crude benchmark spent the week in a tight $4 range, moving between the $73.90 resistance and $69.90 support, and closed the week on a bearish note of just above $70 “within the previous week’s bearish engulfing candle”.

With the weekly Relative Strength Index at 42 and Stochastics at 32/45, the best bets were on a “continued downward momentum”, Dixit added.

He further stated, “A sustained break below $70 will ease the way down towards the 200-week Simple Moving Average, or SMA, of $66.90. If WTI breaks and closes the day below the 200-week SMA of $66.90, the upcoming correction is likely to extend deeper into the 100-month SMA of $59.45.

On the flip side, consolidation above $70 will help some recovery towards $71.70 and $72.20, above which further upside towards the $73.80 resistance can be witnessed. If rebound continues above this zone, the next upside targets will be $74.70 and $75.70.”

Gold Outlook

Dixit of SKCharting observed that gold did not show any major move throughout the week and closed within the previous week’s range as price action remained capped within the $2,048 resistance and $2,001 support.

He however stated, “As long as gold sustains above the 5-week Exponential Moving Average, or EMA, of $1,999, a retest of $2,016-$2,022 is very likely. A sustained move above $2,022 will help gold regain some positivity, bringing $2,032-$2,038 on bulls’ radar.

Also, reclaiming $2,048 and a strong acceptance above this zone will signal resumption of the uptrend, targeting a retest of the $2,081 record high.” The broader perspective in gold suggests traders should buy any significant dips as the return to record highs is looking increasingly likely, he adds.