DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange advanced more than 2% on Friday, with all petroleum contracts notching weekly gains. The moves came as investors positioned ahead of the meeting among OPEC+ ministers Sunday, June 4, that could deliver a surprise production cut taunted by Saudi Arabia.

Further spurring gains for the oil complex, the number of active, oil-targeted rigs in the United States plummeted by 15 this week to the lowest level since April 2022 at 555, according to oilfield services company Baker Hughes. It marked the fifth consecutive weekly decline and the largest one-week drop in the oil rig count this year. This suggests drilling activity in the U.S. oil patch is quickly decelerating following the downtrend in oil prices since late last year along with higher costs including for labor amid sticky inflation.

Government figures released earlier this week showed domestic oil production declined by 100,000 barrels per day (bpd) during the final week of May to 12.2 million bpd -- still 900,000 bpd below the pre-pandemic high recorded in February 2020.

The fading recovery in the U.S. oil patch coupled with a still-resilient labor market could force the hand of OPEC+ ministers to push back against another production cut touted by Saudi Arabia. As of Friday afternoon, a majority of market participants expect the group will keep production quotas unchanged at their Sunday meeting after cutting collective oil output by nearly 3.5 million bpd since October 2022.

Arguably, Saudi Arabia targets higher oil prices, in the $80s range, to finance its megaprojects toward a more diverse and sustainable economy. Russia, on the other hand, has made little progress on pledged production cuts and has very little appetite to go for additional commitments after it captured considerable market share from Saudi Arabia by selling cheap oil to Asian consumers. Less than 48 hours after Saudi Oil Minister Prince Abdulaziz bin Salman suggested OPEC+ might go for another production cut, his Russian counterpart, Alexander Novak, dismissed the idea, saying the oil market is quite balanced and doesn't require additional production cuts. These diametrically opposed positions between two of the world's largest oil producers stoked fears of another breakdown between Moscow and Riyadh that led to a painful price war in April 2020.

In broader markets, investors assessed Friday's nonfarm employment report released Friday morning by U.S. Department of Labor, showing headline payrolls soaring to 339,000 versus expectations for 195,000. The increase was widespread, with notable upticks in professional and business services, government, and healthcare. The large April gains were revised even higher, another signal of labor-market strength. The unemployment rate, however, moved up to 3.7% from a decades-low 3.4% in April. The surge in payrolls indicates the labor market remains robust and may pose difficulties for Federal Reserve officials who were largely hoping to pause interest-rate increases at their June 13-14 meeting. The move up in the unemployment rate may support that decision, though.

"We do not believe today's report was strong enough to meet the bar for the Fed to hike in June but raises the risk that the Fed could hike in July. While payroll numbers were undeniably strong, the (Federal Open Market Committee) will also be focused on the unemployment rate," commented Morgan Stanley analysts.

At settlement, West Texas Intermediate July futures advanced $1.64 per barrel (bbl) to $71.74 per bbl, and the front-month August Brent contract rallied to $76.13 per bbl, up $1.85 per bbl on the session. NYMEX RBOB July futures surged $0.0645 per gallon to $2.5007 per gallon and NYMEX ULSD futures rallied $0.0422 to $2.3569 per gallon.

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