DTN Oil

WASHINGTON (DTN) -- Erasing midmorning losses, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session higher, lifting West Texas Intermediate above $76 barrel (bbl) after U.S. oil producers pulled back on drilling activity for the fourth consecutive week, signaling broader slowdown in the domestic oil industry hit with inflation and high interest rates.

The number of active oil-targeted rigs in the United States declined by two this week to 590 -- the lowest level since June 2022, according to oilfield service provider Baker Hughes. Since the start of the year, U.S. oil producers deactivated 29 rigs with the rig count falling all but two weeks so far this year. A confluence of factors could be behind the steady decline in drilling activity, including high costs of labor and land, oil price volatility, and reduced productivity in some of the country's most prolific oil fields. For instance, the rig count in the Permian Basin in West Texas fell by six -- the biggest single-rig drop since September 2022.

Meanwhile, crude-oil production in the U.S. fell to 12.2 million barrels per day (bpd) for the week ended March 3, which is 800,000 bpd below the pre-pandemic peak of 13 million bpd, according to the latest weekly estimates from the Energy Information Administration. As financial conditions tighten and credit becomes more expensive, oil traders expect the domestic oil industry will take a larger hit later this year as the broader economy slows under the weight of the Federal Reserve's rate hikes.

Friday's employment report showed the U.S. unemployment rate jumped to 3.6% in February after falling to 54-year low 3.4%, offering some evidence that the labor market is slowing but not enough for the Fed to slow the pace of rate increases.

According to the Fed's own projections, the unemployment rate would have to rise to 4.6% this year from the current 3.4% to bring down inflation to 3.1%, a magnitude of change that is usually seen only in recessions. For comparison, PCE inflation -- the Fed's preferred gauge of consumer prices -- currently stands at 5.4% and the core measure of inflation, which excludes volatile food and energy prices, is at 4.7%. Both measures are far above the Fed's 2% inflation target.

The U.S. labor market still added hefty 311,000 new jobs last month, with notable gains in leisure and hospitality, health care and retail sales. Within sectors of the economy, leisure and hospitality added 105,000 jobs in January compared with an average of 89,000 jobs per month in 2022. Employment in leisure and hospitality is still below its pre-pandemic February 2020 level by 410,000, or 2.4%.

In February, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents, or 0.2% -- a slowdown from 0.3% seen over the prior two months. Over the past 12 months, average hourly earnings have increased by 4.6%.

Further details of the employment report showed the number of job losers and persons who completed temporary jobs increased by 223,000 in February to 2.8 million. The number of persons jobless less than five weeks increased by 343,000 to 2.3 million in February, offsetting a decrease in the prior month. What's more interesting, the labor participation rate increased for the second consecutive month in February to 62.5%, which might suggest people are returning to the labor market after pandemic-related disruptions.

At settlement, WTI futures for April delivery advanced $0.96 to $76.68 bbl, and international crude benchmark Brent contract for May delivery rallied to $82.78 bbl, up $1.19 bbl on the session. NYMEX RBOB April futures added 4.07 cents to $2.6458 gallon, and ULSD April futures spiked 10.40 cents to $2.7729 gallon.

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