Oil Gains as USD Drops to Six-Month Low Ahead of Jobs Report

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged higher early Friday as the dollar index extended losses against global peers amid risk-off sentiment ahead of the release of the November nonfarm employment report that could show the U.S. labor market cooled off more than expected under pressure from rising interest rates by the Federal Reserve.

The U.S. economy likely added 200,000 new jobs in November, down from job growth of 261,000 in October, albeit still at an elevated level compared to pre-pandemic job growth. The national unemployment rate is expected to remain unchanged from the prior month at 3.7% and wage growth is seen cooling to 0.3% after a 0.4% gain in October.

These points should be encouraging statistics for the Federal Open Market Committee that is looking for evidence of a cooling labor market as it shifts to a less aggressive path in its rate increases.

A recent wave of layoffs announced by large tech companies could be an early sign of steeper deterioration in an overheated labor market. In November, there were 52,771 job cuts announced by technology firms, according to Challenger, Gray and Christmas data released Thursday morning. That represents the highest monthly total for the sector since 2000. Despite those losses, weekly jobless claims have barely budged in recent weeks and remain at levels seen during healthy economic times.

On Thursday, the Labor Department reported weekly unemployment claims dropped by 16,000 to 225,000 for the week ending Nov. 26, while continuing claims increased to 1.61 million from 1.56 million for the week ending Nov. 19. New job openings also dropped to 10.3 million vacancies as of Oct. 31, down 353,000 from September and 760,000 lower than a year ago. That left 1.7 job openings per available worker for the month.

Also on Friday, investors will monitor EU negotiations aimed at reaching an agreement on a price cap on Russian oil, with European Commission still awaiting the response from Poland, which wants a low price cap that would hinder Russian oil exports. Latest reports indicate a compromise has been reached where Poland signs on to a higher price cap of $60 bbl in exchange for more sanctions on Russian banks and individuals. The deadline for Poland to sign on to the agreement is reportedly set for 10 AM ET Friday.

All 27 EU members need to agree on a common price ceiling for Russian oil exports, which will then be enforced by G7 nations through the mechanism that would forbid Western companies from insuring cargoes unless the oil is sold at or below the cap.

For context, Russian crude benchmark Urals is currently trading $23 below the global benchmark Brent that settled Thursday's session just north of $87 bbl. Russians were forced to offer steep discounts for its crude on the global market to lure in reluctant buyers in the aftermath of the Ukrainian offensive. If the price cap is agreed to by all 27 members, the measure should lead to minimal disruption for Russian oil exports since it has little to no impact on the price formation mechanism for Russian crude.

The aim of the price cap is to deprive Putin's regime of excessive profits that it could use to fund the war in Ukraine. At the same time, G7 nations don't want to cause global oil shortages that might lead to price spikes. Even though Western countries vowed to wean themselves off the Russian crude, Asia is still buying it and, in some cases, redirecting those supplies back to Europe. The cap is scheduled to take effect on Dec. 5.

Near 7:30 AM ET, the U.S. dollar dropped 0.19% against a basket of foreign currencies to trade near a six-month low at 104.485. West Texas Intermediate January contract advanced $0.49 to $81.71 bbl, and February Brent futures on ICE traded $0.40 higher at $87.25 bbl. January RBOB futures on NYMEX gained to $2.3468 gallon, up by $0.0048, and the January ULSD contract advanced $0.0455 to $3.3079 gallon.

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

Liubov Georges