DTN Oil

WASHINGTON (DTN) -- Bolstered by a retreat in the U.S. dollar index triggered by a weaker-than-expected September employment report, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated gains in afternoon trade Friday, lifting the U.S. crude benchmark above $80 per barrel (bbl). The gains came as market participants assess a deepening supply shortfall for the global oil market amid depleted inventories in the European Union and Asia and accelerated gas-to-oil switching.

The U.S. economy added a disappointing 194,000 new jobs in September, the lowest monthly job growth rate this year and well below estimates for 450,000 filled positions. The job growth in August was revised higher by 131,000 to 366,000, while July's employment figures topped 1.091 million.

Digging further into the report, most job losses took place in the government and public sectors, mainly in schools that might be linked to vaccine mandates and the Delta surge of coronavirus infections. Centers for Disease Control and Prevention shows COVID-19 cases plateaued around mid-September and sustained a downtrend into early October.

While addressing Friday's disappointing jobs report, U.S. President Joe Biden said, "Today's report is based on a survey that was taken during the week of Sept. 13 -- when COVID cases were averaging more than 150,000 per day. Since then, we've seen the daily cases fall by more than one-third, and they're continuing to trend down, and we're continuing to make progress."

Not all parts of the report were bad. The unemployment rate fell below 5%, down 0.4% from the previous month, and the number of unemployed fell by 710,000 from the previous month to 7.7 million. In the private sector, employment rose modestly across several industries, including leisure and hospitality businesses, retailers and factories.

September's employment report is unlikely to change Federal Reserve plans to begin slowing the pace of $120 billion monthly asset purchases sometime later this year, with Fed Chairman Jerome Powell indicating the central bank doesn't need a "knock-out or super-strong employment report" to start tapering.

On Friday, major stock indices on Wall Street finished mixed, and the U.S. dollar declined 0.15% against a basket of foreign currencies to settle at 94.079, offering support for the November West Texas Intermediate contract that settled the session at a $79.35-per-bbl seven-year high on the spot continuous chart, paring an advance to an $80.11 intrasession high. International benchmark Brent crude advanced $0.44 to $82.39, while gaining more than $3 per bbl on the week. NYMEX November ULSD futures moved up 1.41 cents to $2.4737 gallon, and front-month RBOB futures rallied 3.18 cents or 1.5% to a $2.3662-per-gallon settlement.

Oil futures were bolstered earlier in the week by a decision from the Organization of the Petroleum Exporting Countries and Russia-led producers not to raise output above previously agreed to 400,000 barrels per day (bpd) next month despite fuel shortages across major economies and excess demand growth from gas-to-oil switching. Bank of America commodity research estimates that in a sustained switching scenario, the oil deficit this winter could easily exceed 2 million bpd, with top-line demand pushed up by 1 million to 2 million bpd mainly from Asian fuel burning capacity, particularly in Japan.

In Europe, one of the principal concerns is the reliability of Russian gas supplies which President Vladimir Putin said would reach new record highs this winter. Analysts were quick to point out that Russian gas exports alone cannot solve Europe's energy crisis brought by lower-than-expected output from renewable energy sources and depleted inventories. Russia's gas production reached a decade-high in September, and domestic demand remains exceptionally robust heading into what forecasters say would be a "cold and snowy" winter. It remains unclear if Gazprom in fact has the capacity to rapidly boost gas exports.

Liubov Georges can be reached at liubov.georges@dtn.com