DTN Oil

WASHINGTON (DTN) -- After Thursday's sell-off that sent both crude benchmarks to their lowest trade levels since the Russian invasion of Ukraine on Feb. 24, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange eroded further in overnight trade as investors await the release of July employment data in the United States, expected to show a slowing pace of new hires amid softer economic growth and tightening monetary policy.

Oil traders will be closely watching the U.S. non-farm employment scheduled for 8:30 a.m. EDT release for the latest signs of whether the economy is entering a recession as the Federal Reserve stepped up its inflation fight in recent months with a series of outsized rate hikes. The labor market is expected to have added 250,000 new jobs in July, down from 372,000 reported the prior month, with the unemployment rate remaining steady near a 50-year low at 3.6%. If confirmed by the data this morning, this would be the slowest hiring pace since December 2020. Incoming macroeconomic data continues to soften and suggests that labor market growth is slowing materially from strong levels seen in the prior months.

Supporting this argument is the latest JOLTs report released on Tuesday that showed the number of job openings fell by 605,000 in June from 11 million range where it has been stuck for months, according to the Bureau of Labor Statistics. The largest decreases came in the retail sector, down 343,000, wholesale trade, which fell 82,000, and in state and local government education, off by 62,000.

Weekly unemployment claims also paint a picture of a slow deterioration in the labor market. Initial claims for jobless benefits fell less than expected 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.

"Employment indices from a variety of business surveys have clearly deteriorated, though they have not fully collapsed," said economists from Wells Fargo, adding that "notably, initial jobless claims have steadily risen in recent weeks and stand above 250,000."

The softening trend in the labor market doesn't bode well for gasoline demand in the second half of the year, according to analysts, with the four-week average gasoline consumption falling 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 sensitively 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.

Near 7:45 a.m. EDT, nearby-month delivery WTI fell $0.52 to $87.94 barrel (bbl), while international crude benchmark Brent contract for October delivery declined $0.42 to $93.74 bbl. NYMEX September RBOB dropped 1.40 cents to $2.7795 gallon, while NYMEX September ULSD contract slumped 11.90 cents to $3.2197 gallon.

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