Crudes Again Rally as USD Softens Ahead of Payroll Report

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied again early Friday, with both crude benchmarks trading at their highest price points in more than four weeks as investors positioned ahead of the release of a key employment report in the United States that is expected to show robust employment growth in April and strong wage gains, underscoring a protracted tight domestic labor market despite an increasingly slowing economy.

Jobs and growth prospects will be the focus of Friday's trading after Federal Reserve took up the fight against inflation with a rare 50-basis point rate hike on Wednesday, betting that a strong economy and recovering labor market could weather aggressive monetary tightening.

U.S. employers likely added another 400,000 new jobs in April, which would be slightly below the gain of 431,000 recorded in March. On average, U.S. economy added 500,000 new jobs each month since the start of the year. The national unemployment rate, meanwhile, is seen falling to pre-pandemic low of 3.5%, matching the February 2020 rate that was the lowest since 1969. What could be of a particular interest for economists is the pace of wage gains in April, which is seen advancing 0.4% from the previous month -- the same pace recorded in March. Should wage growth surprise to the upside, it would offer evidence inflationary pressures in the economy are getting worse.

More evidence of a tight labor market can be found in this week's government data that showed a record 11.5 million job openings on the last day of March, while a record 4.5 million Americans quit their jobs.

In its fight against inflation, the Federal Open Market Committee, as expected, boosted the benchmark federal funds rate 50 basis points to a range of 0.75% to 1%, while detailing the first official plans to reduce its $8.9 trillion balance sheet. Chairman Jerome Powell, however, added a dovish tone to the decision, suggesting that core inflation may have peaked and that a 75-basis point rate hike is not being "actively considered" by policymakers.

Markets seesawed in recent days as investors navigated murky waters of a slowing economy, rising interest rates and surging oil prices.

Stocks on Wall Street suffered their worst day of the year on Thursday, sending Dow Jones Industrials as much as 1,315 points or 3.9% lower and S&P 500 down 5.9%.

"What's happening right now is exactly what the Federal Reserve wants to happen. They want a weaker stock market. They want higher bond yields," said former New York Federal Reserve President Bill Dudley.

Against this backdrop, Organization of the Petroleum Exporting Countries and Russian-led allies once again declined to raise output above their pre-planned 432,000 barrels per day (bpd) increase in June, sticking to the Moscow-backed agreement reached in July 2021 to return production shut-in during the early days of the pandemic in small, incremental steps. The decision comes despite repeated calls in recent months from the United States and other oil-consuming nations for the coalition to tap into remaining spare capacity in Saudi Arabia and the United Arab Emirates -- two producers that can still rapidly increase output to offset a supply deficit on the global market.

Near 7:30 a.m. EDT, NYMEX June WTI futures advanced $2.16 barrel (bbl) to $110.42 bbl and ICE July Brent crude futures rallied $2.26 to $113.20 bbl. NYMEX June RBOB gained 4.51 cents to $3.7038 gallon and the June ULSD contract declined 3.87 cents to $4.0026 gallon.

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

Liubov Georges