CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed off modest overnight gains in early trade Friday, sliding after the Department of Labor reported strong job growth and higher wages in August that increases the likelihood that the Federal Reserve would hike the key federal funds rate when it meets later this month.
Odds were already high that officials would hike the federal funds rate, currently at 1.75%, when the Federal Open Market Committee meets Sept. 25-26. An increase in the rate, which sets borrowing costs for a range of activities such as auto and home loans, would also strengthen the U.S. dollar, with the greenback and domestic oil having an inverse relationship.
Lower trade also follows rallies to multi-month highs by West Texas Intermediate and Brent futures while the ULSD contract spiked to a 3-1/2 year high during extended trading over the Labor Day holiday as Tropical Storm Gordon was churning in the Gulf of Mexico.
"As happens so often with oil storm markets, they buy up the rumor and run the market too high and too fast only to have to cover those longs when they find out that the damage was not as bad as they feared," said Chicago-based Phil Flynn, senior market analyst with the Price Futures Group.
Supply data released Thursday by the Energy Information Administration was also bearish for oil products, showing an unexpected build in gasoline stocks and larger-than-estimated increase in distillate fuels for the final week of August. The increase in gasoline stocks occurred during the final week of the summer driving season, with gasoline demand consistently declining in September from August.
Commercial crude stocks did drop a large and more-than-expected 4.3 million barrels (bbl) to a 401.5 million bbl 3-1/2 year low. Still, crude supply is expected to build in the coming weeks amid seasonal refinery maintenance. Additionally, 11.0 million bbl of crude oil from the Strategic Petroleum Reserve is set for deliveries in October and November, while Russia's crude production is expected to ramp up in September following investment upgrades and the completion of field maintenance.
At last look, Nymex October WTI futures were down $0.55 at $67.22 bbl, with ICE November Brent $0.40 lower at $76.10 bbl. Nymex October ULSD futures were 1.15 cents down at $2.1975 gallon, with October RBOB futures 1.15 cents lower at $1.9335 gallon.
Brian L. Milne can be reached at firstname.lastname@example.org
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