WASHINGTON (DTN) -- Heading into the 3-day holiday weekend, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange tumbled Friday amid late-week strength in the U.S. dollar and a 2-session rout in equity markets, while oil traders look to slowing demand for motor gasoline following the Labor Day weekend.
As the summer driving season comes to an end, which was lackluster amid the COVID-19 pandemic, a big question surfaces over the shape of U.S. gasoline demand going into the fall months. Typically, gasoline demand would drop after the Labor Day weekend, but this year market dynamics might play out differently given the coronavirus impact on the reopening of schools and universities. Gasoline demand is expected to decline in the coming weeks, but the drop off might be less than in previous years.
Four-week average gasoline demand for the period ended Aug. 28 stood at 8.865 million barrels per day (bpd), 8.9% below the corresponding 4-week period a year ago, Energy Information Administration data shows.
Demand has been subpar for ultra-low sulfur diesel fuel too, which closely correlates with economic growth in the United States. EIA shows distillate fuel supplied to market trailing year ago by 202,000 bpd or 5.1% during the most recent 4-week period, with distillate stocks in a glut. At 177.5 million barrels (bbl), domestic distillate fuel inventories are currently 33% above this time last year and about 23% above the 5-year average.
At settlement, NYMEX ULSD October futures declined for a third session, down 1.62 cents or 1.5% to $1.1515 gallon, a more than 2-month low settlement on the spot continuous chart. The October RBOB contract declined 2.77 cents to $1.1772 gallon on the session, also a more than 2-month spot low settlement.
In crude trade, the U.S. benchmark West Texas Intermediate for October delivery plunged $1.60 to a $39.77 bbl settlement, the first settlement below $40 bbl on the spot chart since July 9. The international crude benchmark Brent November contract settled the session $1.41 lower at $42.66 bbl, also an 8-week low settlement on the spot continuous chart.
A strengthening U.S. dollar, which softened on the session, weighed on WTI futures late in the week, reversing off a 28-month low 91.725 traded Tuesday (9/1). The dollar found strength on U.S. manufacturing and jobs data released this week, with initial unemployment claims falling below 900,000 for the first time since the pandemic began in March.
Non-farm payroll report for August showed the U.S. unemployment rate plummeted 1.3% from the previous month to a better-than-expected 8.2%, reinforcing the view the labor market is healing from its coronavirus hiatus in April. U.S. economy added 1.4 million jobs in August versus 1.763 million in July and a much stronger 4.791 million new jobs in June.
Employment component for both manufacturing and service indexes released this week by the Institute of Supply Management showed some improvement from the previous month but still failed to break out from contraction territory.
The ISM Services PMI Employment index ticked up to 47.9, up more than five points from last month's 42.1 reading and the ISM Manufacturing PMI Employment component rose to 46.4, about a 2-point improvement from last month's 44.3 reading.
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