The GERM Report

-Oil prices bounce in US jobs report.

-Cleveland Fed’s Mester says the devil is in the details.

Crude oil prices were on the rise in early Thursday trading after US government data showed an increase in fuel product demand. A decline in inventory levels in Cushing, Okla., the delivery point for US crude, was also supportive for crude. The rally was supported further by US jobless claims, which showed the eleventh straight decline in new weekly filings. Still, the market remains disconnected from reality. The price of oil is now incentivizing US production and Norway says it no longer plans to tighten its production belt further. Elsewhere, the US economy remains under tight pressure from a resurgent coronavirus.

The price for Brent fizzled in the previous session as traders combed over the latest data from the US Energy Information Administration. US commercial crude oil inventories were a mixed bag, though a drop in gasoline stocks supported the sentiment that economic activity was resurrecting. The price for Brent crude oil was up 0.4% as of 8 a.m. ET to trade at $40.87 per barrel.

A survey of economists from the Reuters news service found the US Labor Department was expected to show new filings at 1.3 million for the week ending June 13, down from the 1.54 million claims in the previous week. New claims came in higher than expected, but still marked the eleventh week in a row for a decline and a far cry from the record 6.9 million in new claims from late March. That’s sure to catch the attention of US President Donald Trump, who is desperate for victories. The president, amid a severe bout of social unrest, boasted last week that “the greatest economy in history is coming back.”

And that may be enough to push equities and crude oil prices higher on the day. Stock futures, however, are pointing to a down day on Wall St. Jobless claims are still twice as high as they were during the recession in the late aughts. And Steven Blitz, an economist at TS Lombard in New York, told Reuters that the headlines may paint more of a surreal picture of the US economy.

“The economy is losing workers and employment beyond the initial impact tied to businesses that shut down,” he said. “There are a lot of industries that are getting hurt and that’s starting to cascade down, that is what those numbers are showing.”

Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said perspective is essential when digesting the latest economic data. The unemployment level is close to where it was during the Great Recession, meaning all of the jobs gained during the largest economic expansion in history are gone. The employment rate is 13% lower than in February.

“The deterioration in the labor market is even sharper than these numbers indicate,” she stated. “Many people left the work force at the beginning of the shutdown and they do not show up in the unemployment rate, and many workers had their hours cut.”

Her sentiment clashes with that of the US president. Trump, in an interview with the Fox news channel, stuck to his guns by downplaying the severity of the situation and said there was no way the US economy would lock down again. The president is planning to go ahead with a rally in Tulsa, Okla., amid concerns about a spike in new coronavirus cases in the US south. Texas reported 3,100 new cases, Florida notched more than 2,600 and Arizona cited an increase of some 1,800 on Wednesday. Only three states – Michigan, New Jersey and New York – are on pace to contain the virus.

All that said, it seems that $40 per barrel is enough to bring some producers back to the field. Shale oil producers spent much of the early part of the second quarter filing for bankruptcy and pondering state-intervention to support the market. Curtailments sidelined 2 million bpd in US production at its peak. Now, US producers are reaching again for the spigot as crude becomes range-bound and are on pace to restore about a quarter of the barrels sidelined by the pandemic. That’s sure to complicate matters for the committee monitoring compliance with the OPEC+ reductions when they meet later today. The market-share war between Russia and Saudi Arabia is in a cease-fire for now, though discipline may be essential to control a delicate market balance. Norway, which agreed to sideline barrels to help stabilize the market, said the situation has improved and there was no longer a need for deeper cuts.