Crude oil is holding recent gains to start this week after recovering to close out last week. Some solid US jobs data lifted the market mood on Friday and several risk asset classes were boosted.
253k non-farm US jobs were added in April, well above the 160k anticipated and the revised 165k previously. The unemployment rate hit 3.4% last month, the lowest level since 1969.
Sentiment was further bolstered by Chinese tourist travel data that showed 274 million mainland domestic trips were taken over the Golden Week holiday period. This is a bright spot on what has been general market disappointment for the economic rebound on China’s reopening.
Crude oil had been under pressure for most of last week after what appeared to be a flash crash on Thursday.
The WTI futures contract traded almost 24% lower than the peak seen in April after the OPEC+ output cut announcement. It has since recovered to be down only around 14% today trading above US$ 71.
OPEC+ have said that their meeting in early June will be in person in Vienna rather than a virtual one. This has been interpreted by some pundits that it may indicate that the cartel is looking to be more active in supporting oil prices and that further output cuts might be forthcoming.
In the meantime, the monthly OPEC+ oil market report is due to be released this Thursday.
On the downside, some structural factors might be undermining black gold with the RBOB crack spread sliding lower. The RBOB crack spread is the gauge of gasoline prices relative to crude oil prices and reflects the profit margin of refiners.
RBOB stands for reformulated blendstock for oxygenate blending. It is a tradable grade of gasoline. If profitability decreases for refiners, it may lead to less demand for crude. The dip in this indicator comes despite soft EIA inventory data last week.
The crude recovery saw volatility retreat lower as measured by the OVX index. Potentially revealing that the market is comfortable with current pricing.
At the same time, the difference in price between the front two WTI futures contracts is relatively benign and could hint toward a degree of balance in the market for now.
Update crude oil prices can be found here.
WTI CRUDE OIL, CRACK SPREAD, BACKWARDATION/CONTANGO, VOLATILITY (OVX)