Oil Futures Reverse Off Fresh Lows Ahead of Jobs Report

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Intercontinental Exchange Brent crude and New York Mercantile Exchange oil futures contracts nearest to delivery rallied Thursday, with West Texas Intermediate and Brent reversing off fresh two-week lows after three straight lower sessions. The advance came ahead of the Department of Labor's closely watched monthly nonfarm employment report due out Friday morning, which follows a weekly decline in initial unemployment filings during the final week of July.

A 14,000 decline in first-time unemployment filings to 385,000 during the week ended July 31 reported Thursday morning by the Labor Department was slightly less than expected but suggests a gradually improving labor market in the United States. Estimates call for job growth of 900,000 for July in Friday's Department of Labor's nonfarm employment report. However, the weekly improvement in first-time claim filings came a session after a disappointing private payroll report from payroll processor ADP released Wednesday that detailed a 330,000 increase in new hiring in July, down from job growth of 680,000 in June, and less than half of an expected 700,000 new jobs.

Nela Richardson, ADP's chief economist, attributed the slowing expansion of new employment last month to bottlenecks in hiring that have been compromised by a surging Delta coronavirus variant.

Slowing job growth reflects a mismatch between skill sets held by job seekers and skills needed for certain jobs to a degree, although there are numerous low-skill jobs available that are going unfilled as generous unemployment benefits continue in about two dozen states. A moratorium on evictions, extended by the Centers for Disease Control and Prevention this week despite a June Supreme Court ruling that said the moratorium must end on July 31 absent congressional action, is yet another dynamic seen keeping some would-be workers idle.

Supply chain issues continue to mount, with shortages of key parts, namely semiconductor chips, prompting General Motors this week to announce it would shut several factories in North America. Supply chain watchers indicate the challenges will continue to grow as infections of the Delta COVID-19 variant in southeast Asia spike, triggering lockdowns that are leading to factory closures and logistical disruptions. These problems have already affected economic growth, with U.S. gross domestic product for the second quarter reported at a robust 6.5% annualized growth rate, although well below an expected 8.5% expansion for the period.

NYMEX September WTI futures settled up $0.94 at $69.09 per barrel (bbl), and ICE October Brent futures ended the session $0.91 higher at $71.29 per bbl. NYMEX September RBOB futures rallied 4.4 cents to $2.2940 gallon, finding strength in Wednesday's supply report from the Energy Information Administration that was bullish for gasoline. NYMEX September ULSD futures settled with a 3.19-cent gain at $2.1060 per gallon.

Also in the news Thursday was heated rhetoric over the July 30 drone attack on an Israeli-managed commercial oil tanker off the coast of Oman, and Tuesday's reported hijacking of an asphalt tanker by Iranian-backed forces near the Strait of Hormuz. The military on the Princess Asphalt departed without incident according to reports, while Israel, the United Kingdom, and the United States blame Iran for the attack on the Mercer Street oil tanker, which killed two. Tehran has denied involvement in both incidents.

Israeli Defense Minister Benny Gantz said Thursday Israel was prepared for a military strike in Iran, according to Times of Israel, adding, however, that other countries need to get involved to resolve the Iran issue.

"The world needs to deal with Iran, the region needs to deal with Iran, and Israel also needs to do its part in this situation," Gantz was quoted as saying.

The tanker incidents preceded Thursday's Iranian presidential inauguration of Ebrahim Raisi, with Israel branding Raisi as the "Hangman of Tehran" over his alleged involvement in the mass killings of prisoners toward the end of the 1980-1988 war between Iran and Iraq, according to the paper.

In his inaugural speech Thursday, Raisi said Iran's nuclear program was peaceful and called on all sanctions against the country to be removed. He also said Iran's ballistic missile program was nonnegotiable.

The tanker incidents further complicate the Biden administration's efforts to return the United States to the 2015 Joint Comprehensive Plan of Action that set limits on Iran's ability to enrich uranium and subjected the regime to international inspections at its nuclear facilities, which were suspended in early June after six rounds of discussion because of Iran's presidential elections. The United States withdrew from the JCPOA in May 2018 under the Trump administration, who said the agreement was weak, and did nothing to stop Tehran's proxy wars in Yemen and Syria, while also pointing to Iran's growing ballistic missile arsenal.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne