Oil Futures End Higher on Jobs Data

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended higher this afternoon, wrapping up the trade week with a rally spurred by short-covering ahead of the weekend-break and a weakening U.S. dollar. The oil futures advance was also supported by a new report showing continuing decline in the number of operating oil rigs in the United States that points to falling production.

In addition, the February U.S. payroll report issued this morning by the Labor Department was mixed. It was bullish on the top-line numbers while the internals were disappointing. Overall, however, it showed the U.S. labor market remains resilient and talk of recession receded, which bodes well for oil demand.

Market psychology has shifted away from bearish, with traders focusing on demand ahead of the spring to summer driving seasons and the prospect that the Organization of Petroleum Exporting Countries would freeze production at January levels.

OPEC members will meet with Russia to discuss how to stabilize oil prices sometime between March 20 and April 1 in Moscow, Russian energy minister Alexander Novak said today.

Russia and Saudi Arabia have tentatively agreed to freeze output if other OPEC members join in. The list of non-OPEC members who will participate in the meeting has not been finalized, he said.

NYMEX April West Texas Intermediate crude futures advanced $1.35 to $35.92 per barrel (bbl) at settlement, and have since gained to a two-month high on the spot continuation chart of $36.23. WTI futures surged $3.14 or 9.6% for the week, making it the third straight week of weekly gains.

May Brent crude futures on the IntercontinentalExchange climbed $1.65 to a $38.72 bbl settlement, and have since rallied to a two-month spot high of $38.90. Brent crude futures advanced $3.62 or 10.3% this week.

Brent widened its premium to WTI by 53 cents to $2.80 bbl at settlement, the widest the spread has been in two weeks.

In products trade, the NYMEX April ULSD futures contract rallied 4.11 cents to $1.1613 gallon, ending near a $1.1665 two-month spot high, while up 11.01 cents or 10.5% on the week.

April RBOB futures settled 3.33 cents higher at $1.3321 gallon, off a three-month spot high of $1.3431 while surging 31.55 cents or 31.0% for the week. The large weekly advance for RBOB futures reflects the seasonal shift in the gasoline market, with the March contract expiring on Monday, Feb. 29.

On Wall Street, the stock market posted gains after seesawing earlier in the session, with Dow Jones Industrial Average climbing by more than 100 points at one point before paring the advance this afternoon.

The U.S. dollar fell to a two-week low versus peer currencies, dropping back from Wednesday's one-month high. A weakening dollar is bullish for oil futures.

Investor sentiment had initially been boosted by the headline numbers in the jobs report showing a better-than-expected 242,000 jobs created in February, up from an upwardly revised 172,000 for January, and the national unemployment rate stayed steady at an eight-year low of 4.9%. However, the market soon eased after investors realized the report also showed earnings fell 0.1% last month and the quality of many of the new jobs created were low-paying part-time service sector jobs while the high-paying manufacturing sector lost 16,000 jobs. Subsequently, the broader market resumed its rally amid speculation one week of data on hourly earnings was not included in the average wage calculation, which diminished the importance of the wage data in the overall assessment of the jobs report.

The report somewhat eased concerns over the economy and prompted speculation about whether the Federal Reserve would now feel comfortable raising interest rates. Recent economic data have been slightly soft, although they suggest modest U.S. economic growth that's better than the rest of the industrialized world.

Most analysts think the Fed won't raise rates because of slowing growth overseas and the strong U.S. dollar that's hurting U.S. exporters.

On supply, Baker Hughes' latest oil U.S. rig count showed a decline of eight to 392 rigs during the week-ended today. The number of active rigs drilling for crude is viewed as a rough proxy for U.S. production, which has fallen sharply since peaking in the second quarter 2015.

Energy Information Administration data shows U.S. crude production at 9.077 million bpd week-ended Feb. 26, the lowest since Nov. 21, 2014. On a monthly basis, U.S. crude production peaked in April 2015 at 9.694 million bpd. That was the highest monthly production rate since April 1971. EIA data showed reported a crude stock build of 10.4 million bbl to 518.0 million bbl for the week-ended Feb. 26, with a year-over-year surplus at 17%.

George Orwel can be reached at george.orwel@dtn.com