Oil Higher After Strong US Jobs Data

NEW YORK (DTN) -- New York Mercantile Exchange oil futures reversed higher Friday morning after a strong U.S. jobs report boosted market optimism about the economy and potential demand growth.

Recent data showed the U.S. economy accelerating in the third quarter and the report issued this morning by the Bureau of Labor Statistics showed the labor market is doing even better. It showed 178,000 new jobs were added in November and the unemployment rate fell to a nine-year low of 4.6%. Forecasters estimated 175,000 jobs and jobless rate staying at 4.9%.

This report makes it almost certain that the Federal Reserve will raise its benchmark short-term interest rates later this month, a move that would boost the dollar while likely reducing market liquidity, analysts said.

The oil futures complex immediately reversed following the release of the jobs report. In overnight trade, oil prices retreated amid profit-taking after a two-day rally following a deal on Wednesday by leading oil producers to cut output in an attempt to drawdown an ongoing supply overhang and rebalance the global market.

The agreement by the Organization of the Petroleum Exporting Countries would reduce their total production by 1.2 million bpd to 32.5 million bpd, effective Jan. 1. Non-OPEC producers are expected to trim their own supply by 600,000 bpd, with Russia agreeing to cut 300,000 bpd from its production.

Market focus has now shifted to the implementation and impact of OPEC's first production agreement since 2008. OPEC has a poor track record of compliance with terms of its supply deals and it is unknown if Russia will follow-through on its pledge after shipping data suggested output in Russia in November neared October's record high of 11.32 million bpd, said analysts.

In addition, since the cuts will be implemented in January against supply levels for this month, analysts said there is still a chance that the current oversupply, which has halved oil prices since 2014, would remain in place next year.

Traders and analysts are also turning their attention to the demand side of the equation. Demand has been robust in the United States and strong economic growth suggests that trend would continue. OPEC is banking on strong demand from the U.S. to help it rebalance the market.

In early trade, NYMEX January WTI crude futures rose 23 to $51.29 bbl. February Brent crude oil futures on ICE complex added 15cts to $54.09 bbl. NYMEX January ULSD futures edged up fractionally to $1.6482 gallon, and January RBOB futures nudged up 0.94cts to $1.5564 gallon.

At 1:00 PM ET, Baker Hughes, Inc. will issue its U.S. rig count for this week, with domestic production during the Thanksgiving holiday week at a 5-1/2 month high of 8.699 million bpd, the Energy Information Administration reported Wednesday.

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