CRANBURY, N.J. (DTN) -- New York Mercantile Exchange spot-month oil futures and Brent crude on the Intercontinental Exchange dove lower Friday afternoon to settle with losses on the session and sizeable declines for the first week of the second quarter, as equities sunk on worry over economic growth amid an escalation in a trade dispute between the United States and China, and lower-than-expected job growth in March.
NYMEX West Texas Intermediate futures were under increased price pressure early afternoon following the weekly oil rig report from Baker Hughes that showed an 11 rig jump this week to a three-year high at 808.
WTI and ULSD futures fell to fresh two-week lows this afternoon, with the Brent and RBOB contracts holding above Wednesday's two-week lows.
In a one-two punch, U.S. President Donald Trump said he was considering tariffs on $100 billion worth of Chinese imports after announcing U.S. intentions earlier this week to impose tariffs on more than 1,300 categories of Chinese goods imported to the United States valued at $50 billion. China said it would retaliate immediately if the Trump administration published the latest list.
Midweek, China announced its intent to impose tariffs on 106 imported U.S. products valued at $50 billion in retaliation for Trump's early week announcement. That was China's second salvo at the United States, with China now threatening tariffs on 234 U.S. products imported into the country.
The second punch was delivered by a disappointing jobs report released this morning. The Labor Department's Bureau of Labor Statistics reported nonfarm employment gains in March of 103,000 that was well below market expectations for job growth of 175,000, with revisions in January and February lowering previously reported job gains for those months by 50,000. March's modest job growth did follow a gangbuster February with 326,000 new jobs, with employment gains averaging 202,000 monthly in the first quarter.
Wage gains remained tepid in March, easing concern over inflation that might slow future hikes in the benchmark federal funds rate, which increased to a 1.75% decade high in March. Higher interest rates would slow economic growth. Today during a speech to The Economic Club of Chicago, Federal Reserve Chairman Jerome Powell supported a gradual pace in raising the key benchmark.
The U.S. dollar retreated after trading at a 2-1/2 week high overnight ahead of the employment report, further weakening after Powell's speech. The dollar and WTI have an inverse relationship since oil trades internationally in dollar denominations.
Equity markets tumbled out of the gate, with the Dow Jones Industrial Average losing nearly 600 points by late afternoon and the S&P 500 Index down nearly 60 points.
Larry Kudlow, the new director of the National Economic Council, had less success in talking equities higher today after sparking a 700-point surge midweek off the session's low. Kudlow told reporters this afternoon that tariffs are sometimes necessary to bring countries to their "senses." He reiterated that the United States and China are not in a trade war.
On Wednesday, Kudlow said Trump wants to negotiate trade issues with China, and added that China might not implement the tariffs. Negotiations are expected to last through the summer.
NYMEX May WTI futures slid to a $61.81 fresh two-week low on the spot continuation chart, and settled down $1.48 at $62.06 per barrel (bbl), erasing $3.04, or 4.7%, of its value in the first week of the second quarter. June Brent on ICE tumbled to a $66.86 low, holding above Wednesday's $66.69 bbl two-week spot low, while settling down $1.22 on the session and $3.32, or 4.7%, lower on the week at $67.11 bbl.
NYMEX May ULSD futures settled down 1.87 cents at $1.9578 gallon, with spot-month ULSD 7.54 cents, or 3.7%, lower on the week. The ULSD contract swung to a $1.9765 two-week spot low Friday afternoon.
NYMEX May RBOB futures ended the week at $1.9547 for a 2.69-cent decline on the day, and on the spot continuation chart is 6.96 cents, or 3.4%, lower. RBOB futures traded down to a $1.9383 gallon low, holding above Wednesday's $1.9363 gallon two-week spot low.
Although down sharply this week, fundamentals remain supportive for oil futures. According to the Energy Information Administration, U.S. oil products supplied to market averaged 20.674 million barrels per day (bpd) in the first quarter, up 1.053 million bpd, or 5.4%, against the comparable year-ago period. Total commercial oil stocks in the United States ended the first quarter at 1.1856 billion bbl, down 151.9 million bbl, or 11.4%, compared with a year ago.
The 11-rig jump in the U.S. oil rig count, the largest one-week increase in two months, does suggest domestic crude production would continue to ramp up, with EIA last reporting output at a fresh record high of 10.46 million bpd. Strong demand domestically and for exports have helped to draw down excess inventory. U.S. commercial crude stocks at 425.3 million bbl are down 110.2 million bbl, or 20.6%, compared with year ago when they reached an all-time high. Meanwhile, U.S. crude exports reached a record high of 2.175 million bpd in concluding the first quarter.
Brian L. Milne can be reached at email@example.com
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