Crude Tumbles on Supply Concerns While Treasurys Decline Ahead of NFP

Crude oil resumed yesterday’s freefall as concerns over a surge in US stockpiles continue to threaten the effectiveness of OPEC’s global production cuts.  Adding to the pressure on crude prices is the potential for increased shale production in the United States, as highlighted yesterday at an energy conference in Houston by Harold Hamm, a billionaire shale oil investor, who stated that the US industry could “kill” the market if it dedicates the financial resources.  The steep uptick in US production presents quite the dilemma for nations involved in the output reducing pact, as increases in prices resulting from the cut have prompted US drillers to boost activity further.  Reacting to the unfolding situation, Saudi Arabian Energy Minister Kalid Al-Falih stated that “the green shoots in the U.S. are growing too fast, Saudi Arabia will not allow itself to be used by others” nor “bear the burden of free riders.”  The overarching uncertainty pushed crude oil prices down another 2% today, as a barrel of WTI touched below $50 for the first time this year.

Abroad, the ECB concluded its policy meeting today, leaving its existing bond-buying program in place and holding its main refinancing rate at zero, as expected.  Adding a touch of pressure to the decision is the fact that inflation levels in the area are above the central bank’s target levels, although ECB President Mario Draghi associates the rise in prices with the jump in energy costs over the past few months.  Draghi managed to appease conservatives in the press conference afterwards when he explained that the ECB had removed one of the standard lines from its introductory statement which pledged action “using all the instruments available within its mandate” to achieve its objectives.  The euro gained 0.4% on the day to $1.0579/EUR.Abroad, the ECB concluded its policy meeting today, leaving its existing bond-buying program in place and holding its main refinancing rate at zero, as expected.  Adding a touch of pressure to the decision is the fact that inflation levels in the area are above the central bank’s target levels, although ECB President Mario Draghi associates the rise in prices with the jump in energy costs over the past few months.  Draghi managed to appease conservatives in the press conference afterwards when he explained that the ECB had removed one of the standard lines from its introductory statement which pledged action “using all the instruments available within its mandate” to achieve its objectives.  The euro gained 0.4% on the day to $1.0579/EUR.

Treasurys sold off again during today’s trading session, with yields/swap rates increasing 2-5bps across the curve, bringing the yield on the 10-year note to just below 2.6%.  Economic reporting was light on the day, highlighted by the weekly initial jobless claims data, which displayed another strong seasonally adjusted level of 243,000.  Tomorrow’s nonfarm payrolls figure will provide further clarity surrounding the employment situation ahead of the Fed’s meeting next week.  An additional 200,000 new hires is expected.  Equity markets were tepid on the day, with all three major US stock indices finishing close to unchanged.