Oil Futures Settle with Modest Gains

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended higher Friday afternoon after seesawing most of the session as a better-than-expected nonfarm payroll report for June was seen both in positive and negative light.

"The strong jobs report was initially supportive because it bodes well for demand, but also it raised concerns that the Federal Reserve will be less accommodative, and might start talking abound raising interest rates," said analyst Phil Flynn at Price Futures in Chicago.

Others agreed.

"The oil market is having trouble gaining traction despite a strong U.S. employment report that the markets seem to be treating as a goldilocks number: just right to reassure the equity market that U.S. economic growth is steady, but without putting the Fed on a path to boost interest rates," said Tim Evans, an energy specialist at Citi Futures in New York.

At settlement, NYMEX August West Texas Intermediate crude oil futures rose 27 cents to $45.41 per barrel (bbl), rebounding from a two-month spot low of $44.77 bbl and down $3.58 for the week. September Brent on the IntercontinentalExchange rose 36 cents to $46.76 bbl settlement, reversing off a two-month spot low of $46.15 and down $3.59 for the week.

Products ended the session little changed with NYMEX August ULSD futures up 0.17 cent to $1.4123 gallon, reversing off near two-month spot low of $1.3989 while down 9.92 cents for the week. The August RBOB futures contract added 0.77 cent to a $1.3708 gallon settlement, bouncing off a four-month low of $1.3523 while shedding 14.27 cents for the week.

On Wall Street, U.S. equity indices rallied with the Dow Jones Industrial Average up 250 points or 1.4% while S&P 500 was up 1.5% and Nasdaq was up 1.6% this afternoon following the payroll report's release. In currency trade, the U.S. dollar was lower versus a basket of major currencies, with a weaker greenback bullish for domestic oil futures.

The Bureau of Labor Statistics said the United States created 287,000 jobs last month, the biggest gain in eight months, and a sharp increase from weak hiring numbers in May that had cast doubt on the strength of the U.S. recovery. The market had expected 175,000 new jobs for the month.

The unemployment rate ticked up 0.2% to 4.9% from an 8-1/2 month low of 4.7% reported for May, as more people were looking for jobs that pushed up the labor participation rate to 62.7% from 62.6% in May. Hourly earnings or wage gains inched up 0.1% for the month versus an expected 0.2%. May job gains were revised down to 11,000 from initial reporting of an already weak 38,000 job gains.

The report is a sign of a strengthening economy and is welcome news for the U.S. Federal Reserve, which last month held off raising the federal funds rate due to uncertainties over the labor market. Since then, the June 23 British vote to exit the European Union has added to economic uncertainty.

The oil futures complex has gyrated during this truncated trade week on both macroeconomic and fundamental data. On Thursday, the Energy Information Administration released bearish supply data showing a smaller-than-expected drawdown of 2.2 million bbl in crude inventories during the week-ended July 1 with the weekly decline also well below the 6.7 million bbl draw reported late Wednesday by the American Petroleum Institute.

On the bullish side, EIA said domestic crude production tumbled by 194,000 barrels per day (bpd) to 8.428 million bpd during the week ended July 1, the lowest output rate since May 2014. Today, Baker Hughes Inc. reported that active oil rigs in the United States rose by 10 to 351 during the week-ended Friday, July 8.

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