The GERM Report

-All that positive data is old data

-Brent gets comfy at around $40/bbl

Crude oil prices moved higher in early Wednesday trading amid expectations of another rebound in hiring in the US economy. Data on floating storage levels, meanwhile, show demand is slowly but steadily on the rise. And while it’s a rear-view look for trading levels today, data firm Kpler found that discipline in June remained tight among parties to OPEC+ curtailments. That lines up nicely for a big rally in commodities, though recent data points may be reflective of a false dawn. Russia, as has been noted in these pages before, is signaling it may be done with voluntary production restraint. The recent increase in US economic lockdowns, meanwhile, indicates more, rather than fewer, layoffs are on the horizon.

The price for Brent crude oil was up 0.9% as of 8 a.m. ET to hit $42.41 per barrel, supported by indications of a phoenix phenomena in the US labor market. With the start of a new fiscal quarter, however, this could mark something of a peak for commodities.

The US Labor Department reported Thursday that non-farm payrolls increased by 4.8 million in June and the unemployment rate improved moderately to 11.1%. That’s a stark improvement over the expectations of 2.9 million in hires and an unemployment rate of 12.4%. Brent rallied another 0.3% from the 8 a.m. mark after the data were released. That follows data from Germany on Wednesday that showed hiring was on the rise in the European economy. The Institute for Supply Management, meanwhile, showed US manufacturing was on the positive side of the reading of 50 that separates growth from contraction. Crude oil prices and market sentiment have recovered strongly from April negativity and rallies look set to continue for the remainder of the US-holiday shortened trade week.

Elsewhere, data firm Kpler reports that compliance among parties to the OPEC+ curtailments was strict in June. The company found OPEC members trimmed exports by 1.84 million barrels per day from May to an average of 17.2 million bpd. That support comes as laggards such as Iraq made a better showing of compliance. That may be behind Russia’s suggestion that OPEC+ members can start to relax. These pages for weeks have been filled with indications that Russia was no longer on board with extended patience. On Thursday, Russian Energy Minister Alexander Novak confirmed the sentiment by saying supply and demand will likely balance out in July. While acknowledging uncertainties, Novak said Thursday that curtailments would ease in August.

“We will have a partial resumption of the unprecedented cuts starting from Aug. 1,” he said.

His stance on supply and demand is supported by data from IHS Markit on floating storage. The analytics firm reported by crude oil in floating storage dropped some 15% from late April levels to around 150 million barrels. Refined products held on tankers dropped from a mid-May peak of nearly 75 million barrels to around 50 million barrels in late June.

All that supports the recent gains in commodities. It bears mention, however, that most of the data points supporting the rally are rear-view mirror figures. June compliance from OPEC+ does little more than indicate producers were mindful of tough market conditions. Despite wide market swings, the price of oil has held more or less to the $40 mark through most of June. US unemployment readings, meanwhile, are from mid-June, well before states such as California reverted back to lockdown. Even still, US data show the largest gains in first-time claims for unemployment came from states such as California, Florida, Oklahoma and Kentucky, which have seen recent spikes in coronavirus infections. Optimism may carry the day, and perhaps the remainder of the week, but market watchers will likely return from the long holiday weekend with a different mindset.