DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange followed equity markets lower in afternoon trade Thursday, with the U.S. crude benchmark sliding below $76 per barrel. The losses came as investors braced for a key U.S. employment report that is likely to help set the direction for the federal funds rate.

Thursday's economic data offered more clues on the state of the U.S. labor market ahead of the February employment report scheduled for a Friday morning release. Unemployment claims for the week ended March 4 jumped more than expected to above 210,000, signaling that growth in the labor market may be starting to slow. Initial jobless claims, a proxy for layoffs, increased by 21,000 in the reviewed week -- the largest week-to-week increase in claims since early October.

Earlier this week, government data showed job openings in January dropped from December's 11.2 million, coinciding with some private-sector data showing that early signs of demand for U.S. workers is cooling. Those key data points might suggest Friday's non-farm employment report may show a marked slowdown in hiring from January's breakneck pace of 572,000 jobs. Consensus calls for the economy to have added 223,000 jobs last month -- a still robust pace compared to pre-pandemic averages.

The unemployment rate is expected to remain near a 54-year low of 3.4%, and the participation rate is seen unchanged at 62.4%. Additionally, investors will be looking for signs of wages rising month-on-month that would signal that the tight labor market is generating inflation.

On the session, the S&P 500 slid 1.85% to end at 3,918.32 -- its worst day since June 2020, while the Dow Jones Industrial Average nosedived 543.54 points to 32,254.86. The Nasdaq Composite shed 2.05% to finish at 11,338.35.

The selloff across financial markets pressured the oil complex as recession fears stirred concerns over fuel demand. West Texas Intermediate futures for April delivery declined $0.94 to $76.74 per bbl, with losses accelerating post-settlement. International crude benchmark Brent contract for May delivery dropped to $81.59 per bbl, down $1.07 per bbl. NYMEX RBOB April futures fell to $2.6051 per gallon, down by $0.0838, and ULSD April futures lost $0.0730 to $2.6689 per gallon.

Limiting losses for the oil complex is a sharp fall in the U.S. dollar index that nosedived 0.3% against a basket of foreign currencies after Federal Reserve Chairman Jerome Powell softened his tone somewhat during the second day of testimony on Capitol Hill this week.

"We have important data before the March meeting, and will be guided by incoming reports on the labor market and inflation. We have not made any decision yet about the March meeting, it's data dependent," said Powell in front of the House Financial Services Committee on Wednesday.

The Federal Open Market Committee will meet for a two-day policy meeting on March 21-22 to decide on its next rate move. More than 70% of investors anticipate the FOMC will lift the federal funds rate by 50 basis points during the meeting, up from 30% seen only a week ago. What's more, markets raised the expected peak rate, known as the terminal rate, to a 5.5% to 5.75% target range to be reached as early as June, implying a full 1% increase in the key borrowing rate for banks between now and the FOMC's June 14 meeting.

Although inflation has slowed in recent months from a peak of 9.1% in midsummer 2022 to 6.4% in January, it's still far above the Fed's 2% target, and Powell and other Fed officials have cautioned that disinflation will be bumpy, and there is a "long way to go."

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