Oil Pared Gains in Friday Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures pared gains at the start of regular trade on Friday morning after a brief overnight rally to new highs following the U.S. strike against Syria.

The trimming of the gains started during premarket and accelerated when the Labor Department released a weak U.S. jobs report for March this morning. Traders also remain cautious in front of the rig-count report due out at 1:0-0 PM ET by oil services firm Baker Hughes, Inc.

The jobs report showed only 98,000 jobs added to the economy in March versus an expected 180,000, prompting a rise in the U.S. dollar, which, in turn, pressed oil futures lower. Still, the economy remains strong, which bodes well for fuel demand.

The oil market is still mulling the broader impact of the U.S. strike on Syria, although with no immediate disruptions to supply the global oil market remains stable but on edge. The Tomahawk cruise missiles that struck an airbase in the Syrian city of Homs last night were ordered by President Donald Trump in retaliation against President Bashar al-Assad's chemical gas attack that killed scores of civilians including children on Tuesday.

That Syrian airbase was the staging ground for the chemical attack on civilians, which reportedly was meant to break the spirit of Assad's opponents but instead sparked global condemnation. President Trump on Wednesday said he had changed his views on Syria following the incident.

Syria has negligible oil supply, having produced only 25,000 bpd in 2015 according to the Energy Information Administration, but its location in the volatile Middle East and bordering oil-rich Iraq and its geopolitical links with other oil producers Iran and Russia stoked market worries that a potentially broader conflict or ripple effects could disrupt oil shipments elsewhere.

Russia, China and Iran condemned the U.S. action, claiming the strike broke international law, but the U.S. got the backing of its allies in Europe, Jordan, Saudi Arabia and Israel. Russia said it is boosting its military presence in Syria and signaled that relations with the U.S. will be impacted by the strike. Tensions are high in the region.

The overnight oil futures gains were short-lived, with growing U.S. oil inventory and production seen offsetting production cuts of 1.8 million bpd agreed to by the Organization of the Petroleum Exporting Countries and their 11 non-OPEC compatriots.

The latest Baker Hughes report is expected to show another increase in the number of rigs actively drilling for oil in the U.S. this week. The report issued Friday (3/31) showed 10 more rigs added to the U.S. oil patch that are now at a 662 19-month high. It was the 11th consecutive weekly increase in the U.S. oil rig count, which is 330 higher on the year.

On Wednesday, EIA's oil report showed a surprise crude stock build of 1.6 million bbl during the week-ended March 31, bringing total crude stocks to a new record high of 535.5 million bbl.

The market price structure of WTI and ULSD as well as Brent remain in contango due to global oil oversupply, while RBOB futures flipped into seasonal backwardation this week ahead of the anticipated increase in summer gasoline demand.

At last look, the May NYMEX WTI futures contract was 25cts higher at $51.95 bbl, off a $52.94 one-month high on the spot continuation chart.

IntercontinentalExchange June Brent futures were up 18cts at $55.07 bbl, off a one-month spot high of $56.08, with Brent's premium narrowing slightly to $3.12 bbl while near a $3.21 two-week high posted on Wednesday.

In products trade, NYMEX May ULSD futures edged up 0.96cts to $1.6225 gallon, near a five-week spot high of $1.6439. NYMEX May RBOB futures nudged up 0.37cts to $1.7333 gallon, off a fresh 19-month spot high of $1.7660.

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