DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session with modest gains, with all petroleum contracts moving off their intrasession highs after G7 ministers agreed on a plan to cap the price of Russian crude oil exports in a bid to limit Moscow's revenues from oil sales and reduce inflation stemming from the Ukrainian conflict.

Following weeks of discussions, finance ministers from G7 nations reached an agreement Friday to prohibit the sale of Russian oil and refined products unless it falls under a certain price limit. It remains unclear what that price cap is or whether it will cover sales of Russian oil only to G7 nations or extend beyond the scope of that group.

In a statement issued by Germany, which chairs the G7 this year, the ministers said they "confirm our joint political intention to finalize and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products."

U.S. Treasury Secretary Janet Yellen furthered, "Today's action will help deliver a major blow for Russian finances and will both hinder Russia's ability to fight its unprovoked war in Ukraine and hasten the deterioration of the Russian economy."

In response to the announcement, the Kremlin issued a statement that it doesn't intend to sell oil to any country that signs onto the price cap scheme. The situation remains fluid.

The news comes ahead of a highly anticipated meeting between Organization of the Petroleum Exporting Countries and Russia-led allies scheduled for Monday (Sept. 5) when the group is expected to decide on the next step in their production policy. Last month, Saudi Arabia signaled the group could cut production for October in a move that could further tighten the global oil market. Some analysts now suggest OPEC+ might leave the production targets unchanged next month as it seeks more clarity on enforcement mechanism for the price cap and whether Iran's oil supplies are returning to the market. OPEC+ Joint Technical Committee forecasts the oil market will have only a modest surplus of just 400,000 barrels per day (bpd) in 2022, much less than forecast earlier, due to underproduction by several of its members.

In financial markets, U.S. dollar index, which has an inverse relationship with West Texas Intermediate, retreated from Thursday's 109.980 20-year high to settle 0.15% lower at 109.510 after U.S. nonfarm employment report showed a rising unemployment rate and easing wage pressures for last month. Hourly earnings for all employees eased to 0.4% from 0.5% recorded in July, bringing the annual rise in wages to 5.2%. Rising wages are inflationary.

Job growth in August was stronger-than-expected at 315,000, led by gains in professional and business services as well as health care and retail trade, while the unemployment rate rose 0.2% from the previous month to 3.7% compared with expectations for the unemployment rate to have held at a five-decade low 3.5%. Among the unemployed, the number of permanent job losers increased by 188,000 to 1.4 million in August, while the number of persons on temporary layoff was virtually unchanged at 782,000.

Following the report, investors reduced bets on a 75-basis point hike in the federal funds rate at the Federal Open Market Committee's Sept. 20-21 meeting to 56% from 75% the day prior. The adjustment in market expectations comes despite a hawkish tone by Federal Reserve Chairman Jerome Powell signaling interest rates would continue to increase and stay higher for a prolonged period until the central bank sees clear evidence that inflation is abating.

"Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into a better balance. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," said Powell during the Fed's annual symposium in Jackson Hole, Wyoming, on Aug. 26.

At settlement, NYMEX October West Texas Intermediate futures added $0.26 to $86.87 per barrel (bbl), while the international crude benchmark Brent contract for November delivery advanced to $93.02 bbl, up $0.66. NYMEX October RBOB futures rallied 7.83 cents to $2.4636 gallon, and NYMEX October ULSD futures gained 1.68 cents to $3.5780 gallon.

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