DTN Oil

WASHINGTON (DTN) -- Nearest-delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday's session with solid gains on the back of stronger-than-expected monthly jobs data out of the United States. However, the upside was tempered by higher-frequency weekly unemployment numbers showing permanent job losses rising and the unemployment rate stalling as parts of the country struggles with a massive coronavirus outbreak.

"The country never got the virus under the control," said Director of National Institute of Allergy and Infection Diseases Dr. Fauci during his congressional testimony this week. The number of new coronavirus infections has breached 40,000 a day, with fatalities also on the rise.

There are emerging signs the U.S. consumer is pulling back on spending, driving and going back to work. U.S. continued unemployment claims for last week -- the number of people receiving unemployment benefits for consecutive weeks -- rose to 19.29 million, nearly 300,000 above forecasts, suggesting permanent job losses are rising. Furthermore, traffic activity is taking a hit across new COVID-19 hotspots, with downtrend emerging in Texas, Florida and California. All three states are major centers for U.S. gasoline consumption.

Underlining this trend, weekly inventory data showed demand for motor gasoline in the U.S. lower in the most recent week to 8.561 million barrels per day (bpd), about 10% lower than at the same time a year ago. Analysts mostly forecast continued gains of about 2% on the week.

Ministers from the Organization of the Petroleum Exporting Countries and allied producers are now carefully watching the second wave of infections, as it could severely dampen oil demand growth, according to Russian Energy Minister Alexander Novak. The group of 23 producers have yet to make a decision on whether to extend their 9.7-million-bpd cuts into August. Mr. Novak, however, believes OPEC+ should be able to ease those cuts.

U.S. shale production showed some signs of recovery in the most recent weeks, with declines in drilling activity slowing. Baker Hughes reported Thursday the number of oil rigs fell by three this week to 185, a relatively minor loss after a long streak of double-digit contractions.

The U.S. oil rig count is down 603 from year ago, with 479 of those rigs pulled from service in the second quarter.

Even still, oil and equities closed the holiday-shortened week with hefty gains across the board after the U.S. employment report for June showed the economy added 4.8 million jobs and the unemployment rate fell to 11.1%. It must be noted the survey was conducted before July 12 and failed to capture the latest virus dynamics. The data was bullish against expectations for a more modest increase of 3 million jobs, marking the second consecutive month of notable improvement in U.S. labor market after more than 20 million Americans lost their jobs in April. "Today's announcement proves that our economy is roaring back ... we're putting out the flames of the fire," President Donald Trump said in a news conference following the report.

The next few weeks will prove to be pivotal for the markets to sustain this sentiment.

Heading into the holiday weekend, NYMEX August West Texas Intermediate futures advanced $0.83 to $40.65 a barrel, while rallying 5% on week. Brent crude for September delivery settled $1.11 higher above $43 per barrel

NYMEX ULSD August futures rallied 3.15 cents to a near-one-week high $1.2311 and advanced 7% from last Friday. The front-month RBOB August contract surged 4.25 cents to $1.2592 a gallon, while gaining near 9% this week.

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

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