DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the Friday session lower, with both crude benchmarks retreating from 1 1/2-month highs following a disappointing employment report in the United States that heightened concerns over laggard recovery in the world's largest economy, while traders assessed supply risks from political unrest in Kazakhstan and Libya.

On the session, the front-month West Texas Intermediate futures retreated $0.56 to $78.90 barrel (bbl) and the international benchmark Brent crude for March delivery slipped $0.24 to $81.75 bbl. NYMEX February RBOB futures declined 0.54 cent to $2.2989 gallon, with the front-month ULSD contract edging 0.41 cent higher on the session to $2.4939 gallon.

U.S. employers added just 199,000 new jobs in December -- far below expectations for 400,000 positions opened and the fewest in any month of 2021, according to the data released Friday morning by the U.S. Labor Department. What's more concerning is that last month's report is unlikely to reflect omicron's impact on the economy as data collection stops on the 14th of each month. Slower job growth instead reflects companies' inability to find workers as labor supply remains tight and inflation is surging. In recent months, job openings surged to historically high levels and workers quit their jobs at record rates. Many employers are ramping up pay as they compete for a limited pool of workers. Average hourly wages increased 4.7% in December from a year earlier, holding well above wage growth of roughly 3% preceding the pandemic and playing a part in historically high inflation.

The evidence of a tight labor market and high inflation is likely to keep Federal Reserve officials on track to lift interest rates this year. Minutes from the Federal Reserve December policy meeting revealed the extent of their concern over raging inflation. "Inflation readings had been higher and were more persistent and widespread than previously anticipated," the minutes said. "Some participants noted that ... the percentage of product categories with substantial price increases continued to climb." The Fed said last month it would reduce the monthly bond purchases it has made since the spring of 2020 -- which are intended to lower long-term rates -- at twice the pace it had previously set and will likely end those purchases in March. The Fed's policymakers also suggested they could hike short-term benchmark interest rate three times this year.

Meanwhile, it remains unclear how violent protests in oil-rich Kazakhstan might impact the nation's 1.6 million in daily crude production, but unrest on the streets of Almaty was enough to send oil futures to their highest level since the omicron outbreak. Wire services reported that protests reached the nation's largest oil field -- Tengiz -- reducing some of its daily production. Kazakhstan President Kassym-Jomart Tokayev ordered security forces this morning to "kill without warning" to crush the protests that have paralyzed the former Soviet republic and reportedly left dozens dead.

Further supporting the oil complex, a Bloomberg survey published this week found OPEC added only 90,000 barrels per day (bpd) in new production in December against a quota to increase output by 250,000 bpd last month, which the cartel is entitled to under their deal with Russia-led producers. The output has been severely limited by Africa's largest producers Nigeria and Angola that combined underproduced to a tune of 250,000 bpd in recent months.

Liubov Georges can be reached at liubov.georges@dtn.com