DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange fell for the third consecutive session on Thursday, with the U.S. benchmark losing more than 3% in value on a combination of a strengthening U.S. dollar index ahead of the release of August's nonfarm employment report that could tip the Federal Reserve in favor of a third 75-basis point hike in the federal funds rate in as many meetings and China's lockdown of another manufacturing hub that risks to further disrupt global supply chains.

Friday's employment situation report will be one of the key economic data Fed officials will look at before their next policy meeting later this month to help assess the state of the labor market. Economists call it that the U.S. economy added 293,000 new jobs in August, reflecting healthy job growth but a considerable decline from the 528,000 new positions created in July. U.S. unemployment rate is expected to remain at a 50-year low of 3.5%.

Recent economic data might suggest the labor market does not yet reflect the slowdown in the broader economy, with last week's unemployment claims unexpectedly dropping to the lowest level since late June at 232,000 in a sign that employers are still holding on to workers in a historically tight labor market. Earlier this week, the Job Openings and Labor Turnover survey showed job openings climbed past 11.2 million in July -- meaning there are still roughly two available jobs for each individual looking for work.

The Federal Reserve is closely watching the labor market as it tries to cool economic growth and bring inflation under control without triggering a recession.

Fed Chair Jerome Powell said last week the central bank's decision later this month "will depend on the totality of the incoming data and the evolving outlook," adding that the central bank is nowhere near the end of the battle against inflation and will remain resolute in the face of slowing economic growth.

Policymakers at the central bank have indicated over the past week that they remain laser-focused on tackling inflation despite signs the economy is starting to slow.

Internationally, traders are monitoring developments around the lockdown of China's major manufacturing hub in Chengdu with a population of 21 million after a cluster of cases there triggered Beijing's "zero-COVID" policy. The city accounts for about 1.7% of China's gross domestic product and is home to major technology and automakers companies, including Toyota Motor Corp. and Foxconn Technology Group, the world's largest assembler of Apple Inc.'s iPhones, and Intel Corp. among others. All of China's 31 provinces have reported COVID-19 infections in the past ten days, according to Chinese health authorities, a troubling sign for the world's second-largest economy as it battles yet another resurgence of the Omicron variant.

The China lockdowns are troubling news for a global oil market plagued by growing signs of demand destruction in the United States and the European Union. U.S. gasoline consumption fell to 8.9 million bpd in the four weeks of August -- well below the 2021 consumption rate and on par with 2020 when travel restrictions due to the COVID-19 pandemic were still in place limiting personal movement.

Nationally, prices at the gas pump fell every day in August but did little to lure Americans back to the roads. Clues as to why lower pump prices failed to incentivize more driving can be found in a recent survey by the American Automatic Association that showed two-thirds of American adults have already changed their driving habits or lifestyle since March as inflation surged. Drivers' top two changes to offset high gas prices, which reached a record high of more than $5 gallon in June, are driving less and combining errands. With summer driving season officially ending with the Labor Day holiday (9/5), there is little hope that gasoline demand would improve above its historic norms heading into the colder months.

At settlement, NYMEX October West Texas Intermediate futures fell $2.94 to $86.61 bbl, while the international crude benchmark Brent contract for November delivery settled at $92.36 bbl, down $3.28. NYMEX October RBOB futures fell 4.55 cents to $2.3853 gallon, with NYMEX October ULSD futures retreating 10.62 cents for a $3.5612 gallon settlement.

The U.S. dollar index, which has an inverse relationship with WTI, settled 0.9% higher at 109.678, a more than 20-year high.

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