Crude Stabilizing In Spite Of Rampant Bear Data

While there is still plenty of room for crude oil to fall, and many reasons for it to do so, for the moment, it seems to have found its middle-ground pricing level.

This is important for a few reasons. First, it gives a bit of a boost to the energy component of equities indices. Second, price stability – even at the current middle-low level – projects a sense of solidity, denying volatility one pathway to the goal line. Third, the price is not so low as to discourage some rational investment, nor is it too high to invite marginal producers back in immediately.

The price stability found traction today despite a number of bearish data reports.

Oil prices pared losses to nudge up into positive territory after plummeting as much as 4% on information that showed U.S. crude stockpiles rose last week.

U.S. crude oil stocks rose by 4.7 million barrels to 455.4 million barrels last week, the Energy Information Administration (EIA) said.

While there is some seasonality to crude building at this time of the year, a four-plus-million-barrel build is larger than normal and thus quite bearish.

Other bearish news included a smaller-than-expected drop in gasoline stocks. It was also revealed today that President Obama has found enough votes in the Senate (34) to prevent an override of a veto he would surely stamp on the Iran nuclear deal. When the deal goes through, a brief tidal wave of Iranian oil will wash over the market and supply will go higher somewhat in the longer term.

While Asian equities remain weak and unpredictable, the U.S. and European indices had a robust day, prompting some to have already called the bottom of the mini-correction. (If it is a correction at all.)

ADP’s private jobs report issued today for August had a surprisingly strong effect on U.S. markets. We say that because the report was a touch light, telling of only 190,000 new jobs. ADP may be a portent that the U.S. Bureau of Labor stats due on Friday might also be short thousands of expected jobs. However, even if the Labor Department’s call is 230,000 total August jobs it still means that the U.S. added almost 3 million new positions in the last 12 months.

The dollar found some strength today. While that didn’t seem to hold back oil’s flip rise, it certainly put a dent in gold’s struggle to get stronger.

Next time, we will revisit this period’s Beige Book report issued today. It said growth was steady, if moderate; inflation and wage growth were virtually non-existent, and the outlook for the next few years was good.

The BB is important because of the impact it might have on the next meeting of the FOMC and interest rate hikes.

A majority of economists believe the Fed is going to hike a quarter point later this month. Traders heartily disagree. The bettors at the CME believe there is just a 27% shot of a September move, while putting the likelihood of a December move at 60 percent.

Wishing you as always, good trading,