WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange finished the holiday-shortened trading week higher, with the U.S. crude benchmark gaining as much 2.3% on Friday, supported by longer-than-expected production outages in the offshore U.S. Gulf of Mexico, with over 66% of regional output remaining offline 12 days after Hurricane Ida's Aug. 29 landfall, and outsized drawdowns from domestic petroleum inventories last week.
On the session, NYMEX October West Texas Intermediate contract advanced $1.58 to $69.72 barrel (bbl), while posting a modest gain since last Friday's settlement. Brent crude for November delivery moved up $1.47 to finish the week 8 cents below $73 bbl. NYMEX October RBOB futures rallied 5.43 cents or 2% to $2.1540 gallon and front-month ULSD futures advanced 3.23 cents for a $2.1460 gallon settlement.
Friday's advance came despite the U.S. dollar reversing higher in afternoon trading after several Federal Reserve officials indicated the world's most powerful central bank is prepared to reduce the pace of bond buying programs as early as November. President of Cleveland Federal Reserve Bank Loreta J. Mester said Friday the U.S. labor participation rate may never return to its pre-pandemic level despite the remarkable progress the job market has made in the past 18 months. U.S. Department of Labor's August employment report showed the labor participation rate is at its lowest level since the mid-1970s at 61.7% and remained little changed since June 2020. Currently, over 8 million Americans remain unemployed despite U.S. employers having a record-high 10.9 million job openings this summer.
This mismatch was echoed in earlier comments from St. Louis Fed President James Bullard, who said there is plenty of demand for workers and "if we can get the workers matched up and bring the pandemic under better control, it certainly looks like we'll have a very strong labor market going into next year."
The U.S. dollar strengthened 0.14% against the basket of foreign currencies to settle the volatile week of trading at 92.590.
The U.S. Federal Reserve came under increasing pressure in recent weeks from central banks in industrialized and emerging economies that withdrew fiscal stimulus amid surging inflation. The European Central Bank announced on Thursday that it would slow the pace of the bond purchases under its 1.85 trillion-euro Pandemic Emergency Purchase Program, making the first step in withdrawing 80 billion euros a month it bought over the previous two quarters. Last month, The Bank of Korea announced a first interest rate hike in three years, indicating rising inflation poses a greater risk to the economy than the latest virus outbreak.
Whereas U.S. and European central bank officials have said they consider price increases to be temporary, central banks across emerging markets increasingly see inflation pressures to be a long-term phenomenon. Unchecked inflation across emerging markets would make it harder for their governments to finance public and private sector debt and purchase dollar-denominated commodities like crude oil. Russia's central bank governor Elvira Nabiullina warned this week that risks have increased significantly and a pronounced financial crisis could begin as early as the first quarter of 2023 should emerging economies default on their public debt.
In the short-term, however, market participants continue to monitor the slow return of offshore oil production in the U.S. Gulf of Mexico, with about 66% or 1.2 million barrels per day (bpd) still offline nearly two weeks after Hurricane Ida's landfall, according to government data from the Bureau of Safety and Environmental Enforcement. There have been signs of progress, with a majority of workers returning to offshore platforms and power supply restored for much critical onshore and deepwater infrastructure. The Louisiana Offshore Oil Port said Thursday it has resumed delivering crude oil to regional refineries.
A spokesperson for Marathon's 578,000 bpd Garyville refinery in Louisiana said, "Refinery and integral logistics systems have returned to operation, supported by access to reliable electric power."
Liubov Georges can be reached at email@example.com