Crude prices seem to be on a back foot, after their last week rally that was supported by a sharp fall in the US Crude oil inventory. Last weekend, the US unemployment data disappointed market expectations creating demand concerns in the US economy. This sent the Black Gold on a downfall from its initial weekly high of $107 per barrel, on Friday.

Last Friday, the Crude oil prices plunged by 2.16% to close at $104.50 per barrel for the 24 hour period ending 23:00GMT. This fall was after the sharp rally in Crude prices in the initial few days of last week that took the prices to a 15-month high of $107.00 a barrel. Later, on the same day, Crude pared back its losses, as it edged up slightly to trade at $105 a barrel.

Black Gold’s sudden fall from its last week price rally can be attributed to the dismal performance in China and the disappointing US data.  The US unemployment data for the week ending June suddenly spiked above the market expectation. The number of jobless claims in US had increased by around 16000 to reach 360,000 against an expected rise of 340,000. This had created growth concerns for the US economy.

Moreover, the Chinese Finance minister had scaled down the GDP growth for China to a mere 7% from the expected 7.5% growth. This had further raised the demand concerns for Crude in China, the biggest emerging economy and US, the World’s largest economy. As a result, these factors dragged down the Crude prices from its sharp rally.

At the start of this week, there seemed to be some reprieve for Crude prices, as they began to post marginal gains. On Monday, the Brent crude front-month contract started to trade higher at $109 a barrel after it had previously dropped to $108. Whereas, the US Crude oil edged up by 37 cents to trade at $106.32 a barrel, when it had previously reached a session low of under $105. 

Later, on Tuesday, the Brent Crude futures were more or less constant, as it advanced slightly by 5 cents to $109.14 a barrel. In line with this trend, the US crude oil only rose by a mere 32 cents to $106 barrel. While on Wednesday, due to choppy trade, Brent Crude again slipped by 22 cents to $107.92 per barrel, by 0311 GMT, with the U.S. Crude oil too dipping by 24 cents to $105.76 a barrel.

Analyzing the reasons behind the fluctuations in Crude oil prices this week, we find that the traders are undecided over the mixed data from the US and the Chinese economy. The more than expected increase in the US Producer Price Index had indicated at a possible rise in US inflation that might drive up the crude prices. Apart from this, the American Petroleum Institute’s weekly report indicated a decline of 2.6 million barrels in the Crude oil inventories.

Meanwhile, the Chinese GDP data displayed a growth of 7.5% in line with the previous market expectations. These factors slightly renewed the demand support for Oil from China and US as the price started to pare back its losses on Monday.

However, the US consumer sentiment displayed a negative trend, as the retail sales in US increased less than the expected levels. Adding to this mind set, earlier this week the Chinese exports data revealed a biggest fall since 2009. This indicated at a possible slowdown in the industrial activity for the fastest growing economy in the world.    

Therefore, these mixed data from the two largest economies in the world has been playing havoc on the traders mind causing choppy trades in the Crude oil markets. As of now, the Crude oil market eagerly awaits the EIA data from US and the Fed chairman’s clarification about the QE tapering time table, when he testifies to Congress this week.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.