DTN Oil

NEW YORK (DTN) -- Erasing midmorning losses, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session sharply higher, lifting front-month West Texas Intermediate above $73 per barrel (bbl) after a weaker-than-expected U.S. employment report triggered a selloff in the U.S. dollar.

Investors in financial markets upped their bets that the Federal Reserve would not have to raise the federal funds rate much higher from the current 5% to 5.25% target range following June's employment report showing the slowest pace in job growth since late 2020. The headline employment number for June was 209,000, slightly below expectations for 213,000 new jobs. However, most of the job gains were concentrated in government, social assistance, and health care categories. The categories associated with post-pandemic jobs creations, including leisure and hospitality along with professional services, showed little change from the prior month. What's more, employment for both May and April were revised lower, with average job growth over the period now 110,000 lower than previously reported.

Interestingly, the unemployment rate still dropped to a decades-low 3.6% after increasing to 3.7% in the prior month. Wages, which are being closely watched by the Fed, were also slightly stronger than expected. Average hourly earnings increased by 0.4% for the month and 4.4% from a year ago. The average work week also increased to 34.4 hours.

June's employment report was underwhelming in light of the strong ADP payroll report and jobless data that revealed the labor market continues to generate solid job growth.

Payroll provider ADP showed private payrolls spiked 497,000 in June -- more than double expectations for 235,000, with the leisure and hospitality sector up 232,000 and education and health services up 74,000, which aligns with the post-pandemic recovery.

"Consumer-facing service industries had (a) strong June, aligning to push job creation higher than expected. But wage growth continues to ebb in these same industries and hiring likely is cresting after a late-cycle surge," commented ADP Chief Economist Nela Richardson.

The new data set paints an uncertain outlook for domestic fuel consumption, with the strong U.S. labor market historically supporting demand for gasoline and distillate fuels. Should the labor market decelerate more quickly over the coming months, this could lead to much weaker fuel demand in the second half of the year.

Weekly inventory report from the U.S. Energy Information Administration showed total demand for oil products spiked 929,000 barrel per day (bpd) or 4.6% to a better-than-six-month high 21.235 million bpd in closing out the first half of 2023.

Domestic gasoline demand surged 293,000 bpd to 9.599 million bpd for the final week of June -- 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.

At settlement, U.S. dollar declined 0.89% against a basket of foreign currencies to 101.950 and NYMEX August West Texas Intermediate futures advanced to $73.86, up $2.06 per bbl. ICE September Brent crude gained $1.95 to $78.47 per bbl. NYMEX August RBOB futures added $0.0455 to $2.5893 per gallon, and August ULSD futures rallied $0.0797 to $2.5591 per gallon.

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