DTN Oil

CRANBURY, N.J. (DTN) -- The front month crude and gasoline contracts on the New York Mercantile Exchange advanced Friday afternoon and NYMEX diesel futures erased losses to end flat as a bullish jobs report pushed back recession fears and suggested continued strong demand, while the international Brent crude contract on the International Exchange rallied on a tight world oil balance.

While posting hefty losses on the week on concern over lost demand amid recession, oil futures moved off multiweek lows plumbed during Tuesday-Wednesday sessions following better-than-expected U.S. job growth in June. The Bureau of Labor Statistics early Friday reported 372,000 job gains for the month that was well above consensus for 270,000 new positions. Driving the employment gains were jobs in professional and business services, leisure and hospitality, and health care.

Friday's employment data came on the heels of Thursday's Energy Information Administration oil inventory report that showed strong demand for transportation fuels and distillates, with implied gasoline demand up 5.5% to a 9.413 million bpd 2022 high during the week-ended July 1. Distillate fuels supplied to the U.S. market surged 814,000 bpd or 22.8% to a 4.382 million bpd 15-week high, while jet fuel implied demand jumped 321,000 bpd or 21.7% to 1.801 million bpd, the highest weekly demand rate since before the pandemic in December 2019.

The strong weekly demand readings run contrary to slowing economic growth, including reduced consumer discretionary spending amid high and broadening inflation and climbing interest rates. And while distillate demand did spike last week, it was off the second lowest weekly implied demand rate of 2022, which aligns with slowing manufacturing activity.

Undoubtedly, Americans continue to travel following pandemic restrictions, with gasoline demand during the profiled week also bolstered as suppliers position inventory for quick dispatch ahead of Independence Day to capture holiday driving demand. Historically, gasoline supplied to the U.S. market falls following the holiday weekend.

EIA also noted Thursday that after strong demand growth for gasoline from mid-2020 through the first quarter, the trend reversed in April. Their analysis finds from April through the first week of July gasoline consumption averaged 8.9 million bpd, 200,000 bpd or 3% less than the comparable period in 2021, while the lowest consumption rate since 2001 after stripping out 2020 -- the year of pandemic lockdowns.

The sluggishness in demand when considered historically is countered by low inventories and reduced refining capacity following years of underinvestment and shuttered refineries amid lost consumption during the pandemic and conversions to renewable production facilities during an unfolding energy transition. This tightness will likely sustain high oil prices through the summer that remain at risk of spiking due to a major hurricane impacting refining, or further geopolitical disruption. The current easing in oil prices is also due to technical factors amid falling open interest.

There's also the challenge in understanding the current U.S. economy, which was noted by Federal Open Market Committee officials at their June 14-15 meeting. According to the meeting's minutes released this week, there are "conflicting signals recently regarding the pace of economic growth, making it challenging to determine the economy's underlying momentum."

NYMEX August West Texas Intermediate futures settled $2.06 higher at $104.79 bbl after trading in a $95.10-$111.45 range this week. ICE August Brent futures double bottomed at $98.50 this week, having fallen from a $114.75 high traded Tuesday before settling Friday's session at $107.02 bbl for a $2.37 gain.

Trading ranges were far wider for oil products this week, with NYMEX August RBOB futures registering a $3.1880 low and $3.7528 high ahead of Friday's settlement at $3.4471, up 2.67cts. NYMEX August ULSD futures settled 10 points lower at $3.6729 gallon following a $3.3510-$3.9851 trade range this week.

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