Oil Lower Friday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were lower early Friday, trading at three-week lows after the release of a bearish nonfarm jobs report and ahead of a report for this week that's expected to show what could be the 20th consecutive rise in the number of rigs deployed to the nation's oil patch.

The Bureau of Labor Statistic reported this morning that 138,000 jobs were added to the U.S. economy in May, falling short of a projected 185,000 while the unemployment rate fell 0.1% to 4.3%, the lowest it has been in 16 years. Wages rose 0.3% in May and by 2.5% year-on-year, with labor participation rate at 62.7%, the lowest this year.

The jobs report is likely to dull investor enthusiasm, potentially leading to risk-on trade in commodity markets, but also it could support oil futures over the coming days if it weakens the case for a hike in federal funds rate by the U.S. Federal Reserve.

On supply, oil services firm Baker Hughes, Inc. will release its rig-count report later today that would signal whether production was again on course to have moved higher this week. Baker Hughes last week reported the 19th consecutive weekly increase in the rig count, up two last week to 722, the highest number of active oil rigs in more than two years. U.S. oil rigs in operation are 404 higher versus the comparable week in 2016.

Oil futures are on course for steep weekly losses amid concern over a continuing increase in U.S. crude oil production and talk President Donald Trump's decision late Thursday to withdraw the United States from the Paris Climate Change accord would worsen the persistent global oversupply.

The Energy Information Administration on Thursday reported U.S. crude oil production rose again during the week-ended May 26, up 22,000 bpd to a 9.342 million bpd 21-month high. Oil production, which has risen for 19 of the past 20 weeks, is 610,000 bpd higher than a year ago, and 1.28 million bpd above five year average.

Analysts said the decision to abandon a climate pact could encourage more crude oil drilling in the United States going forward. Already, the Trump administration has proposed in its budget for 2018 allowing drilling in the Alaska National Wildlife Refuge.

Trump also proposed selling oil from the Strategic Petroleum Reserve starting in 2018 for the next 10 years, aiming to halve the emergency oil reserves over the period. SPR storage caverns in the Gulf Coast held 686.7 million bbl of crude oil, down 1.0 million bbl, during the week-ended May 26, data from the EIA shows.

Overseas, Libya's National Oil Corp. Chairman Mustafa Sanalla said this week their oil production rose to an 800,000 bpd 2-1/2 year high after an increase in Sharara field output. The Libyans have set a goal of reaching 1.1 million bpd production by August.

Technical indicators show bearish short-term trends for spot-month West Texas Intermediate crude, ULSD and RBOB futures.

At 9:00 AM ET, NYMEX July WTI crude futures tumbled $1.28 to $47.08 bbl, near a $46.74 three-week low on the spot continuation chart, testing retracement support at a $46.91.

August Brent crude oil futures on the IntercontinentalExchange dropped $1.30 to $49.33 bbl open, off a $48.95 three-week spot low, with support at $48.54.

NYMEX July ULSD futures were 2.99cts lower at $1.4718 gallon, off a $1.4634 fresh three-week low on the spot continuation chart and below initial support at $1.4711. The July RBOB futures contract tumbled 3.88cts to $1.5626 gallon, breaking below support at $1.5625 with a trade at a $1.5545 three-week spot low.

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