DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange spiked Friday amid a one-two bullish punch as major oil producers will have their long-anticipated meeting Saturday, June 6, with expectations for 9.7 million barrels per day (bpd) in currently agreed to production cuts for June to be extended for another month, coupled with supportive U.S. jobs data, portending a strong recovery in driving demand recovery in the weeks ahead.

The oil price rally went into overdrive after a surprisingly robust U.S. jobs report showed a 2.5 million job gain in May versus expectations for an 8 million loss; the economy lost 20 million jobs the month prior. The report sent shockwaves across markets, with the Dow Jones Industrials surging 900 points and S&P 500 advanced 2.5%, extending the strongest 50-day rally on record.

"This is not going to be a V-shape recovery. It will be a rocket ship!" said U.S. President Donald Trump in news conference following the report.

Unemployment claims have tapered lower in recent weeks as states began to partially reopen their economies. Other real-time indicators, including mobility indexes and TSA flight data have trended higher, pointing to a recovery. Oil demand suffered substantially from the lockdowns intended to curb the spread of COVID-19 pandemic, which drove down global oil consumption as much as 30% in April.

The oil price rally was further fueled by ongoing supply reductions by the Organization of the Petroleum Exporting Countries, Russia and partners, with an agreement reducing output by 9.7 million bpd taking effect on May 1. Markets are anticipating the 23-nation group to extend their cuts for another month after Saudi Arabia and Russia appear to have reached a tentative supply agreement this week. Markets remain cautiously optimistic that some smaller producers that fell behind on pledged quotas would manage to deliver on promised reductions. Saturday's discussion will be centered on the mechanisms to monitor the timely compliance with the agreement, a prerequisite for extended supply cuts.

In the United States, Baker Hughes reported the number of active oil rigs fell 16 in the week ended Friday to 206, the lowest U.S. rig count in 11 years. U.S. oil rig count is down 583 against a year ago, while 477 less than 12 weeks prior when the string of falling rigs began, with 458 rigs taken out of service in the second quarter.

On Friday, NYMEX West Texas Intermediate July futures surged $2.14 or 5% to settle at three-month spot high $39.55 barrel (bbl) and Brent crude for August delivery jumped above $42 bbl, gaining over $4 bbl on the week amid growing expectations for extended supply cuts by OPEC+ producers. NYMEX RBOB July futures rallied 6.46 cents to a three-month spot high $1.2136 gallon and NYMEX ULSD futures finished Friday's session 7.65 cents higher at $1.1506 gallon.

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

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