DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed off six-month lows in afternoon trade Friday after government data showed U.S. job growth unexpectedly accelerated in July, lifting the level of employment above its pre-pandemic level and easing fears the world's largest economy is teetering on the brink of recession.

Further supporting the oil complex, the number of active oil rigs in the United States unexpectedly fell by seven this week to 598, according to the oilfield service provider Baker Hughes, in what could be the first sign that falling oil prices are causing producers to scale back on drilling activity. This marked the first drop in rig count since late May. The decline was spread across several key oil-producing regions including the prolific Permian Basin in west Texas and New Mexico. The Permian's oil-rig count dropped by four in the latest week to 344.

The focus of Friday's trading was a blockbuster employment report in the U.S. that showed a surprise surge in new hires last month, lifting optimism that the economy can indeed dodge the recession bullet. U.S. employers added 528,000 new jobs last month -- the largest since February -- compared with an expected 250,000 increase. Data for June was also revised higher to show 398,000 jobs created instead of the previously reported 372,000. July marked the 19th straight month of payroll expansion. Further details of the report showed employers continued to raise wages at a strong clip in July and generally maintained longer hours for workers. The labor market has now recouped all the jobs lost during the COVID-19 pandemic, with overall employment now 32,000 jobs higher than in February 2020. Incoming data offset some of the pessimism tied to a steady rise in unemployment claims that showed a slow deterioration in the labor market over the past two months. Initial claims for jobless benefits fell to 260,000 last week -- near the highest level since November -- while continuing claims that run a week behind the headline number, totaled 1.42 million, up 48,000 from the prior week and 83,000 from the beginning of July.

It remains to be seen whether strong jobs data will translate into higher gasoline demand in coming months. The latest U.S. Energy Information Administration data show four-week average gasoline consumption fell to its lowest level since late February -- typically the weakest driving season of the year. At 8.5 million barrels per day (bpd), the weekly demand rate is nearly 12% below the same period last year and some 9% below the five-year average. On July 25, the American Automobile Association published results of a 1,000-person survey, finding that responders have sharply curtailed driving activity in the face of $4 plus gasoline. The same quarterly survey in March also identified $5 gas as a key sensitivity level for some change in driving behavior.

Supporting this argument, U.S. consumer sentiment fell to the lowest level on record at the start of the summer and remained at depressed levels throughout July as Americans fretted over the economy, inflation, and rising interest rates. "Consumers across income, age, education, geographic region, political affiliation, and homeownership status all posted large declines. About 79% of consumers expect bad times in the year ahead for business conditions, the highest since 2009," the Consumer Sentiment report from June stated.

At settlement, nearby-month delivery WTI gained $0.47 to $89.01 barrel (bbl), while international crude benchmark Brent contract for October delivery advanced $0.80 to $94.92 bbl. NYMEX September RBOB added 6.21 cents to $2.8556 gallon, while NYMEX September ULSD contract slumped 12.13 cents to $3.2159 gallon.

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