DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday's session mixed, as blowout gains in private payrolls in the United States and a sizzling U.S. service sector are seen prodding the Federal Reserve to maintain a tightening monetary policy stance.

Private payroll growth of 497,000 in June reported Thursday morning by ADP Research was more than double expectations for 235,000 new jobs, with the leisure and hospitality sector, up 232,000, underpinning the job gains. Ongoing growth in education and health services, up 74,000, also aligns with the post-pandemic recovery. Yet job growth expanded to construction, up 97,000, and trade, transportation and utilities, up 90,000, suggesting a broader recovery across the economy.

Job growth by small companies with less than 50 employees, up 299,000, slightly outpaced new jobs in midsized companies, 50 to 499 employees, up 283,000 jobs in June. Large companies laid off 8,000.

Those gains followed a 496,000 decline in job openings in ending May to 9.8 million, according to the Department of Labor Statistics Job Openings and Labor Turnover Summary, down more than expected. The JOLTs report showed little change in discharges and quits from the end of April to the end of May.

Friday morning, the Department of Labor will release its nonfarm payroll report for June that is expected to show 213,000 jobs were created, down from 339,000 jobs in May. Those expectations were made ahead of the ADP payroll report, portending a possible upside surprise.

Ongoing strength in the U.S. labor market aligns with a robust service sector in June, with the Institute of Supply Management's U.S. service index surging 3.6% to 53.9%, well above market expectations for a 50.8% reading. The service sector has now expanded for six consecutive months despite pressure from inflation and higher interest rates.

"There has been an uptick in the rate of growth for the services sector. This is due mostly to the increase in business activity, new orders and employment," said Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management Services Business Survey Committee. "The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook."

The stronger-than-expected reading for the service sector lifted estimates for economic growth, with the Federal Reserve Bank of Atlanta's GDPNow forecasting model showing a U.S. second quarter gross domestic product seasonally adjusted growth rate of 2.1%, up from 1.9% on Monday (7/3), and above the first quarter's better-than-anticipated 2% growth rate.

"After recent releases from the US Census Bureau and the Institute for Supply Management, the nowcast of second-quarter real gross private domestic investment growth increased from 8.8 percent to 9.6 percent," said the Fed bank.

The bullish data and expectations for continued action by the central bank to counter inflation spurred a stronger U.S. dollar index in intraday trade, trading at a 103.275 three-week high before reversing lower in afternoon trade to settle at 102.867.

An overwhelming majority, 92.4%, expect the Federal Open Market Committee to lift the federal funds rate 25 basis points to a 5.25% by 5.5% target range when they meet July 26, according to the CME Group's FedWatch Tool. In looking to their late September meeting, the FedWatch Tool offers a 27.7% probability of another 25-point hike in the overnight borrowing rate for banks, which increases to 38.8% for their Nov. 1 meeting. A small percentage, 7.9%, see the key rate 75 points higher than now at 6% on Nov. 1.

Today's strong economic data was joined by bullish statistics for the final week of June from the Energy Information Administration, with EIA reporting total U.S. demand for oil products spiking 929,000 bpd or 4.6% to a 21.235 million bpd better-than six-month high.

Domestic gasoline demand surged 293,000 bpd to 9.599 million bpd for the week-ended June 30, the highest weekly consumption rate since October 2021, while the fifth greatest weekly demand rate since the end of pandemic lockdowns. Demand for distillate fuel during the week-ended June 30 also recovered, climbing 497,000 bpd from a 2023 low to 3.811 million bpd.

Total crude oil and petroleum products inventory was drawn down for a third consecutive week to 1.261 billion bbl, EIA data shows, with stocks 21.5 million bbl or 1.7% below the five-year average.

NYMEX August West Texas Intermediate futures settled flat, up $0.01 at $71.80 bbl, and ICE September Brent crude eased $0.13 to $76.52 bbl. NYMEX August RBOB futures rallied off a $2.4638 gallon intraday low to settle up $0.0255 at $2.5438 gallon. NYMEX August ULSD futures fell $0.0139 to $2.4794 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com