DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Friday's session with sharp losses propelled by a spike in the U.S. dollar index after macroeconomic data showed U.S. job growth accelerated at the start of the year even as wages moderated, and more people entered the workforce.

Additionally, business activity in the services sector unexpectedly returned to growth led by renewed strength in consumer demand, a sign of continued economic resilience in the face of higher interest rates.

The U.S. labor market is on fire. Employers added 571,000 new jobs in January -- the largest monthly addition since July 2022, and well above consensus for an expected 185,000 new positions. The unemployment rate fell to 3.4% -- its lowest level since May 1969. The average workweek rose to its highest level since March 2022, meaning employees are working longer hours but the wage growth remained steady at 0.3% or 10cts month-over-month. Over the past 12 months, average hourly earnings eased to 4.4% from an upwardly revised 4.8%. What's more interesting, the labor force participation rate increased to 62.4%, which might suggest people are returning to the workforce after pandemic-related disruptions.

Recent figures showed an increase in job openings for December, bringing the total number of vacancies to 11 million or nearly double the number of unemployed people looking for a job. Unemployment claims also fell last week to their lowest level in nine months.

The hot employment report, however, led to a steep selloff in equity markets and a resurgent dollar as investors reassessed whether the Federal Reserve would keep interest rates higher for longer to bring inflation down.

The Federal Open Market Committee raised its benchmark interest rate by a smaller 25 basis points this week and signaled that it is nearing the end of a monetary tightening cycle. A strong labor market supports the argument for the Fed to stay on course in raising the federal funds rate further and to keep the rate there to ensure the economy doesn't run hotter to reignite inflation.

"The disinflationary process is really in its early stage. You have a credible story in goods and housing. The issue is that we have a large core service sector where we don't have disinflation yet," said Fed Chairman Jerome Powell on Wednesday.

Adding more fuel to the fire, business activity in the service sector climbed out of the contraction last month, with headline PMI reported by the Institute of Supply Management registering 55.2%, up 6% from the previous month. Ten industries comprising the service economy reported growth in January after just a single month of contraction and the prior 30-month period of growth.

In contrast, the manufacturing sector fell into contraction three months ago and remained in sub-50 category at the start of the year, with the headline index at its lowest level since the first wave of the pandemic in March and April 2020, and before that, the recession in June 2009.

Oil traders continue to track macroeconomic data out of the United States, China and European Union in an effort to gauge oil demand for the coming months, with the outlook for 2023 appearing more elusive than ever.

At settlement, West Texas Intermediate futures for March delivery plunged $2.49 to $73.39 bbl, pressured by the rallying U.S. dollar that spiked 1.2% to near 102.755, and the international crude benchmark Brent contract finished the session below $80 bbl, down $2.23 bbl to $79.94 bbl. NYMEX RBOB March contract plummeted to $2.3210 gallon, down $0.1313, and March ULSD futures dropped back $0.1214 to settle at $2.7753 gallon.

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