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Investing.com - “Sell the rumor, buy the fact” — that’s what Wall Street did Friday, with the oil market being no exception, as crude was bid up with stocks while the dollar held off from making new highs, even as Treasury yields did, after a massive US jobs report for September that validated the selloff in bonds.
New York-traded West Texas Intermediate, or WTI, crude for delivery in November settled up 48 cents, or 0.6%, at $82.79 per barrel. That was a rebound from the 8% slump of the past two sessions, although the US crude benchmark did make a fresh five-week low of $81.53 on the day.
London-traded Brent for the most-active December contract settled up 54 cents, or 0.6%, at $84.58, returning to the green lane after also seeing a drop of some 8% between Wednesday and Thursday. Like WTI, the global crude benchmark printed a five week low in the latest session, falling to $83.50.
For the week, WTI was down 9% while Brent fell 11%. That was the worst week since March for both.
US rate hike odds double for Nov after blow-out Sept jobs number
Risk appetite returned to Wall Street, with the Dow, S&P 500 and Nasdaq all rising on the day, despite the US Labor Department reporting 336,000 new non-farm payrolls for September. That was the highest since January’s 517,000, and way above the 187,000 seen in August and the average 170,000 forecast for last month by Wall Street economists.
“This is a problem as it validates the recent move up in Treasury yields,” economist Adam Button wrote on the ForexLive forum. Following the release of the jobs number, money market traders assigned a 30% probability of the Federal Reserve hiking rates by a quarter point in November, double the odds they gave a week ago.
The Fed has repeatedly pointed to an overheated labor market and wage growth, aside from soaring energy prices, as reasons for inflation remaining well above 3% per annum versus its target for 2%.
The central bank has hiked interest rates 11 times between March 2022 and July 2023, adding 5.25 percentage points to a prior base rate of just 0.25%, to contend with inflation which reached 40-year highs of above 9% in June 2022.
Before this week’s tumble, oil hit one-year highs of more than $97 a barrel for Brent and above $95 for WTI.
While crude prices rose on Friday with stocks, the dollar and Treasury yields saw limited moves, probably on profit-taking by currency and bond traders who had front-run the jobs numbers.
The US Dollar Index, which pits the greenback against six other currencies, hovered at 106.2, up on the day, but off from the 11-month high of 107.35 earlier this week. Yields, benchmarked against the U.S. 10-year Treasury note reached a new 16-year high of 4.89.
Oil's downside might not be entirely over
But some weren’t convinced that oil’s downside was over, particularly if the dollar and yields started ramping again on talk of a Fed rate on the back of September blow out number for non-farm payrolls.
“Crude prices are trying to find a floor now that the macro backdrop shows the US economic resilience is not going away,” said Ed Moya. “Oil’s major correction is almost over but this last surge in the dollar post-NFP could see WTI crude eye the $80 level.”
Sunil Kumar Dixit, commodities chartist at SKCharting.com, had a similar view. “If WTI doesn’t continue finding buyers next week, it could drop to $81, and the subsequent support level of $77.”
(Peter Nurse contributed to this article)
