DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced in afternoon trading Friday, sending both crude benchmarks higher for the sixth consecutive week after Saudi Arabia and Russia extended a round of deep production and export cuts into September, while a selloff in the U.S. dollar index in reaction to a slowing labor market further lifted the crude complex.

U.S. economy added 178,000 new jobs in July -- the slowest pace since early 2021, while employment growth in the prior two months was revised lower by a combined 49,000 jobs, according to data released Friday morning from the Bureau of Labor Department. For the second month in a row, employment in leisure and hospitality, a driver of job growth in the post-pandemic labor market remained little changed, adding an average of just 17,000 new jobs over the June-July period. The average hours worked by all employees on private payrolls also declined, signaling less demand for labor.

On the flip side, the national unemployment rate dropped back 0.1% from the previous month to a 3.5% 50-year low, while wages rose more than expected from the prior year to 4.4%. Investors, however, gauged the July employment report had enough ammunition for the Federal Reserve to skip a rate increase at their Sept. 20 meeting, with the CME FedWatch Tool showing 86.5% of investors anticipating no change to the federal funds rates, which is currently in a 5.25% by 5.5% target range.

In reaction to the softer-than-expected employment report, the U.S. dollar index nosedived 0.5% against a basket of foreign currencies to settle the session at a four-day low 101.836, lending upside support for the front-month West Texas Intermediate contract. WTI September futures on NYMEX rallied $1.27 bbl to a fresh three-month spot high of $82.82 bbl, and the Brent international crude benchmark for October delivery advanced $1.10 for a $86.27 bbl settlement.

NYMEX September RBOB futures moved $0.0184 higher to settle at $2.7831 gallon, while the September ULSD contract was an outlier, softening $0.0127 from the highest trade in six months at $3.0954 to $3.0622 gallon.

Underscoring gains in the oil complex, Saudi Arabia announced on Thursday an extension of a unilateral 1 million bpd production cut into September, while hinting that those cuts could be further extended and "deepened to support the market balances."

The latest production cut by the Saudis comes atop of voluntary curbs of 500,000 bpd previously announced by the Kingdom in April, which are now extended until the end of December 2024. In effect, Saudi oil production for September will be 9 million bpd -- their lowest output rate since 2012 outside of the pandemic.

Also announced Thursday, Russia said it would limit oil exports by 300,000 bpd in September, adjusting the reduction from 500,000 bpd currently.

Friday morning, the OPEC+ Joint Ministerial Monitoring Committee reaffirmed the continuation of previously announced production cuts through the end of 2024, with OPEC+ previously agreeing on April 3 to reduce their production collectively by about 1.2 million bpd beginning in May. The agreement in April followed previously announced production cuts, with the voluntary reduction in output by participating members lifting the total amount cut to 1.66 million bpd.

Also boosting the oil complex on Friday, a Ukrainian drone attack briefly disrupted operations at Russia's major oil shipping hub, the Novorossiysk port, on the Black Sea.

Traffic at the Novorossiysk port was halted for hours, according to wire services, disrupting operations at the marine terminal of the Caspian Pipeline Consortium -- the main export route for seaborne Russian and Kazakh barrels. Some 1.9 million bpd or 2% of global oil supply is processed through the Novorossiysk port, making it one of the chokepoints for global oil trade.

While short-lived, the port's closure increased concerns over the security of Black Sea oil trade in the midst of tightening global oil balances. The heightened geopolitical risk follows the termination of a one-year agreement allowing Ukrainian grains to be exported from the Black Sea unhindered by Russian attacks. Moscow declined to renew the agreement in July after the one-year term and has instead targeted Ukrainian ports along the Black Sea. For its part, Ukraine has declared any vessel leaving Russian ports on the Black Sea as a legitimate target for attack amid the escalation of the war between the two countries in recent weeks.

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