DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied Friday, with the U.S. crude benchmark extending gains into a sixth consecutive session, finishing a dynamic week above $92 per barrel (bbl). The gains were fueled by the potential for widespread oil and gas wellhead freeze-offs in the Permian Basin due to subzero temperatures brought about by Winter Storm Landon, and optimism over faster demand growth in the United States after government data reported employers added new jobs at a much brisker pace than previously estimated.

U.S. labor market added 467,000 new jobs in January, with job growth expanding at a much quicker pace than previously thought, bolstering the economy in the face of the COVID omicron surge and rampant inflation. The Bureau of Labor Statistics also revised higher combined job gains for November and December by 709,000.

BLS reported the U.S. labor participation rate that remained little changed over the course of 2021 unexpectedly jumped to 62.2% in January, signaling that people who previously left the job market are returning to the labor force.

Overall, January's employment report painted a picture of a labor market that is much stronger than previously thought that might open the door for a more aggressive tightening of monetary policy by the Federal Reserve, which has a dual mandate in keeping prices stable and unemployment low. Amid the strong jobs market, Fed policymakers, which are seen behind the inflation curve, could decide to increase the federal funds rate now at zero by 50-basis in March rather than the 25-basis-point increase markets are primed for. Such a move by the central banks could trigger a selloff in equities and crimp discretionary spending, which correlates closely with gasoline demand.

In reaction to the bullish employment report, the U.S. dollar regained upward momentum to finish the session at 95.480, adding 0.10% against a basket of foreign currencies, but failed to slow the gains for the March West Texas Intermediate futures that finished the week above $92 per bbl. Brent crude for April delivery rallied $2.16 for a $93.27-per-bbl settlement. The Brent-WTI spread narrowed to $0.96 per bbl, reflecting the growing potential for a weather-caused disruption in domestic production and low inventories at the Cushing storage hub in Oklahoma, the delivery location for WTI futures.

NYMEX March RBOB futures surged 3.58 cents or 1.2% to $2.6785 per gallon and the front-month ULSD contract rallied more than 3 cents to $2.8751 per gallon, supported by strong demand for middle distillates across the Northeast amid bitter cold weather.

In Texas, gas and oil-producing wells are freezing up due to subzero temperatures, and the situation is likely to get worse over the weekend, according to sources.

"Factors include icy roads, some power loss, high winds, mechanical issues and freezing equipment that is being addressed by personnel in the field," said Texas Oil and Gas Association.

DTN Weather forecasts temperatures in Midland and Odessa, Texas, plunged to the low 20s Fahrenheit on Friday, prompting some producers to shut-in wells. Around 1.7 billion cubic feet a day or 12% of natural gas production in the region has been shut-in ahead of the weekend.

Negative temperature anomalies will likely remain in effect for several cities along the storm's 2,000-mile path from Texas to New England states through this weekend into early next week.

Internationally, Libya's National Oil Corporation said on Friday the country's oil production has been cut by 100,000 barrels per day this week due to the port closures along the Mediterranean Coast. Crude loadings out of the six oil terminals -- Brega, Zueitina, Ras Lanuf, Zawiya, Mellitah, and Sidra -- were halted due to hazardous weather conditions just weeks after militia groups controlled by the General Khalifa allowed for the oil exports to resume. Libya pumped around 1.053 million bpd in December, according to OPEC estimates.

Further supporting the complex, private surveys showed the 13-member cartel once again missed its production target in January, pumping 674,000 bpd less compared to previously agreed to production quotas. Reuters estimate OPEC's compliance with production cuts rose to 132% in January from 127% in December, meaning underproduction issues have only deepened at the start of the year. This week, OPEC+ doubled down on their pledges to increase production in monthly installments of 400,000 bpd, although few analysts believe the alliance can actually deliver on those pledges.

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