Oil Higher After US Jobs Data

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were higher after the U.S. Labor Department reported better-than-expected job gains in February, although the overnight advance in futures was retraced because the market was disappointed by the quality of the jobs created and the lack wage growth.

The healthy jobs growth bodes well for the demand outlook for oil, and the strong headline numbers initially prompted a brief spike in equities, with the dollar lower after initially strengthening as the jobs data was announced.

At 8 a.m. CT, NYMEX April West Texas Intermediate crude futures gained 19 cents to $34.76 barrel while May Brent crude futures on the IntercontinentalExchange gained 34 cents to $37.41 bbl. In products trade, the NYMEX April ULSD futures contract edged up 0.59 cents to $1.1261 gallon, off a $1.1384 two-month spot high, while April RBOB futures rose 1.45 cents to $1.3133 gallon.

On Wall Street, the stock market has since pared the gains after the initial spike, as scrutiny of weak parts of the jobs report prompted investors to have second thoughts. The report showed earnings fell and most of the jobs created were part-time, analysts said.

The payroll report showed 242,000 jobs were created in February, which is more than the expected 195,000, while unemployment rate remained steady at an eight-year low of 4.9%. January jobs gains were revised up by 21,000 to 172,000, the report showed, and the labor participation rate rose 0.2% to 62.9% but hourly earnings fell by 0.1% versus a month prior while down 0.3% versus a year earlier.

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.

However, most analysts think they Fed won't raise rates because of slowing growth in China and in the euro zone and the strong U.S. dollar that's hurting U.S. exporters. Holding off on a rate hike would support the oil market.

Analysts also said the market has flipped from being concerned only about excess supply to the point where it's now hopeful about demand prospects, which would depend on economic growth. If the pace of hiring continues at current pace, demand for gasoline and other products would be strong, said analysts.

Meantime, traders also await Baker Hughes' latest oil U.S. rig count to be released later in the day. 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 barrels per day for the 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 also 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%. The total stock-build included an 8.7 million bbl spike in the U.S. Gulf Coast and a 1.2 million bbl crude stock increase to 66.3 million bbl at the Cushing terminal in Oklahoma, the delivery point for NYMEX WTI futures. Working storage space at Cushing is estimated at 90.8% of capacity.

Overseas, a summit by the Organization of Petroleum Exporting Countries and non-OPEC producers is set for March 20 in Moscow to discuss the tentative deal between Russia and Saudi Arabia to freeze production at January levels.

Analysts note the actual impact of such an effort on supply is likely to be limited since those countries are pumping at record levels and Iran has said it won't freeze its output after winning sanctions relief in January.

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