The Four Horsemen of Crude Oil (USO) (OIL)
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After a blockbuster Friday, commodity futures are giving up gains in early trading on Monday. United States Oil Fund LP ETF (NYSE: USO) is expected to open lower as WTI futures pull back from highs near $85 per barrel. Although largely expected, data over the weekend showed that China manufacturing continues to slow.
As the world's fastest growing economy, manufacturing in China is one of the largest factors affecting the price of oil. Three other major factors affecting the price of oil include demand in the U.S., the recession in Europe, and OPEC production.
Analysts say weak demand in the U.S. is tied to what so far has been an anemic recovery. Last week investors received positive data about the housing market in the U.S., which has finally stabilized, but poor jobs growth continues to remain a thorn in the side of the economy. June payroll numbers in the U.S. are expected to show an increase in hiring of 90k. While this is a positive for the economy and oil prices, no one is cheering about the jobs numbers. There are also growing fears that the Fed is running out of levers to pull with regard to monetary policy and efforts to spur growth.
After 14 summits with little to show for their efforts, optimism about the EU summit last week was nearly nonexistent. On Friday investors following the European crisis were shocked to learn that the EU summit actually accomplished something, namely a road map to closer fiscal and banking union in the region. However, with economies in the region continuing to contract, buzzards continue to circle the skies in Spain and Italy as the patient remains on life support.
Despite open criticism from other OPEC members, Saudi Arabia continues to keep the spigot open. With production at highs and prices falling, many are assuming a cut in production is on the way. However, with Iran facing sanctions, the situation remains complex. The Saudis are also concerned about the crisis in the EU and they are frankly terrified the U.S. could enter recession again. This would be a disaster for oil prices, and so production is where it is.
Meanwhile, crude oil prices are being beaten. Last week's spike higher, while a positive, isn't enough to turn the tide of negative sentiment, especially with Friday's payroll number right around the corner. Until then, expect choppy price action in WTI and United States Oil Fund LP ETF (NYSE: USO). Traders should also keep their ears open for statements from OPEC, especially the Saudis.
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As the world's fastest growing economy, manufacturing in China is one of the largest factors affecting the price of oil. Three other major factors affecting the price of oil include demand in the U.S., the recession in Europe, and OPEC production.
Analysts say weak demand in the U.S. is tied to what so far has been an anemic recovery. Last week investors received positive data about the housing market in the U.S., which has finally stabilized, but poor jobs growth continues to remain a thorn in the side of the economy. June payroll numbers in the U.S. are expected to show an increase in hiring of 90k. While this is a positive for the economy and oil prices, no one is cheering about the jobs numbers. There are also growing fears that the Fed is running out of levers to pull with regard to monetary policy and efforts to spur growth.
After 14 summits with little to show for their efforts, optimism about the EU summit last week was nearly nonexistent. On Friday investors following the European crisis were shocked to learn that the EU summit actually accomplished something, namely a road map to closer fiscal and banking union in the region. However, with economies in the region continuing to contract, buzzards continue to circle the skies in Spain and Italy as the patient remains on life support.
Despite open criticism from other OPEC members, Saudi Arabia continues to keep the spigot open. With production at highs and prices falling, many are assuming a cut in production is on the way. However, with Iran facing sanctions, the situation remains complex. The Saudis are also concerned about the crisis in the EU and they are frankly terrified the U.S. could enter recession again. This would be a disaster for oil prices, and so production is where it is.
Meanwhile, crude oil prices are being beaten. Last week's spike higher, while a positive, isn't enough to turn the tide of negative sentiment, especially with Friday's payroll number right around the corner. Until then, expect choppy price action in WTI and United States Oil Fund LP ETF (NYSE: USO). Traders should also keep their ears open for statements from OPEC, especially the Saudis.
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