DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Friday's session higher, with the February West Texas Intermediate contract expiring above $81 per barrel. The gains came after industry data reported the number of oil-targeted rigs in the United States unexpectedly declined this week, while a softer U.S. dollar index further boosted buying interest for U.S. crude benchmark.

Bakers Hughs reported Friday that the number of active U.S. oil rigs dropped by 10 this week -- the largest weekly decline since late 2021 that depressed the total rig count to 613. Even the prolific Permian Basin of West Texas and New Mexico saw a decline in activity, with its oil rig-count falling from a nearly three-year high of 353 rigs the week prior. The decline is inconsistent with forecasts for robust U.S. production growth this year and fueled concerns that the weakening economy could be behind the softer drilling activity.

This week's macroeconomic data painted a rather dismal outlook for the U.S. economy at the start of the year, with business activity in manufacturing and service sectors falling to post-pandemic lows. For instance, manufacturing activity in the Empire State plummeted 22 points in early January to a negative reading of 32.9. The figure represents the fifth worst reading in the survey's history and was twice as weak as even the most pessimistic estimates.

"New orders and shipments declined substantially. Employment growth stalled, and the average workweek shortened. Looking ahead, firms expect little improvement in business conditions over the next six months," according to comments by the Fed bank. Sharp deceleration across the key sectors of the economy suggests the Fed's aggressive rate hikes have clearly worked their way into the broader economy, depressing consumer demand.

Federal Reserve Vice Chair Lael Brainard indicated in remarks on Thursday that the central bank is still "probing" for the correct level of interest rates that will both tame inflation and ensure the economy avoids recession.

"Inflation has been declining over the past few months against a backdrop of moderate growth," said Brainard, adding that "significant weakening in the manufacturing sector and a moderation in consumer spending pointing to subdued economy in 2023."

The latest remarks represent one of the last opportunities for policymakers to shape expectations ahead of their upcoming policy meeting on Jan. 31-Feb. 1 where the central bank is overwhelmingly expected to raise interest rates by a quarter percentage point. The Fed raised interest rates aggressively last year, lifting its benchmark federal funds rate by 4.25%, most recently by a half point in December, to a range between 4.25% and 4.5%. The latest increase followed four moves of three-quarters of a point.

At settlement, West Texas Intermediate for February delivery expired at $81.31 per barrel (bbl), up by $0.98 on the session, with the March contract expanding its premium against the expired contract to $0.33. Brent March futures on ICE rallied $1.47 to $87.63 per bbl. NYMEX RBOB February contract advanced to $2.6454 per gallon, up 4.86 cents on the session, and front-month ULSD futures jumped 9.09 cents to $3.4668 per gallon.

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