DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange extended losses into early morning Friday, with West Texas Intermediate on course for a 6% decline this week pressured by weak fuel demand and hawkish comments from Fed Chairman Jerome Powell as markets positioned ahead of the U.S. employment report that will likely help to set the direction of the federal funds rate.

The U.S. economy likely added 225,000 new jobs in February -- the lowest monthly gain since April 2022 and a marked slowdown from January's neck-breaking pace of 517,000 new jobs. The unemployment rate is still expected to remain near its 54-year low of 3.4% and the participation rate is seen unchanged at 62.4%. Should the February employment report come in with more than 250,000 job gains, it could be interpreted by investors that the labor market is much more immune to the interest rate increases than previously thought. This would be bad news for the Federal Reserve, which has tried for nearly a year to cool down the labor market. According to the Fed's own projections, the unemployment rate would have to rise to 4.6% this year from the current 3.4% to bring down inflation to 3.1%, a magnitude of change that is usually seen only in recessions. For comparison, PCE inflation -- the Fed's preferred gauge of consumer prices -- currently stands at 5.4% and the core measure of inflation, which excludes volatile food and energy prices, is at 4.7%. Both measures are far above the Fed's 2% inflation target.

Fed Chair Powell and his colleagues warned this week that inflation appears to have partially reversed the downtrend that might be linked to warmer-than-usual weather or reflective of sticky price pressured in the underlying economy. Against this backdrop, investors will likely pay close attention to average hourly earnings for any clues of a wage spiral in the February jobs report.

This week's economic data showed some cooling signs in the labor market, with unemployment claims for the week ended March 4 increasing more than expected to above 210,000 -- the largest week-to-week increase in claims since early October. Meanwhile, job openings in January dropped to 10.8 million from December's 11.2 million, coinciding with some private-sector data showing early signs of demand for U.S. workers easing.

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.

In early morning trading, West Texas Intermediate futures for April delivery declined $0.52 to $75.20 barrel (bbl), and international crude benchmark Brent contract for May delivery dropped to $81.16 bbl, down $0.42 bbl. NYMEX RBOB April futures fell to $2.5962 gallon, and ULSD April futures edged higher by $0.0150 to $2.6839 gallon.

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