Oil Deepens Losses After Mixed US Employment Report

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses in the afternoon session Friday, sending the West Texas Intermediate April contract towards $78 bbl after a mixed U.S. employment report showed stronger-than-expected job growth in February was accompanied by softer wage gains and a rising unemployment rate, which has reinforced the case for the Federal Reserve to lower interest rates in coming months.

The U.S. labor market added 275,000 new jobs last month, even as the unemployment rate unexpectedly climbed to a 2-year high of 3.9%, according to data released this morning from the Bureau of Labor Statistics. While the headline figure exceeded market expectations for a 190,000-gain, that was only after the previous two months of payroll data was revised lower by 167,000. Additionally, average hourly earnings eased to 0.1% month-on-month, down sharply from a 0.6% gain at the start of the year, suggesting that the January surge in pay was an anomaly rather than a sustained trend.

"The bottom line for policymakers and most economists, this employment report doesn't contain much new information. If you think that the labor market is too hot, you will point to the headline number and increased hours worked; if you believe that the labor market is softening, you will point to the revisions and hourly earnings," said Mohamed El-Erian, President of Queens College, Cambridge, and chief economic advisor at Allianz to Bloomberg TV.

However, financial markets, that are biased towards rate cuts from the Federal Reserve this year, appear to favor the report as it supports the case for easing monetary policy.

More than 50% of investors anticipate the Federal Open Market Committee will make its first move on rates in June, followed by three more rate cuts in July, September, and December.

In his testimony to the Senate Banking Committee yesterday, Federal Reserve Chairman Jerome Powell reinforced the narrative that interest rates are on the way down "sometime this year."

"If the economy does as expected, we think carefully removing the restrictive stance of policy will begin over the course of the year," Powell said.

He further noted that the number of rate cuts will depend on the development of the economy, recalling that the Fed's latest projections indicate a median preference for three rate cuts in 2024.

On Friday, the U.S. dollar index continued its week-long retreat against foreign currencies, having fallen below the 200-day moving average of 103.543, but this failed to lend price support for the prompt-month West Texas Intermediate futures contract. WTI April contract on NYMEX declined $0.92 bbl to settle at $78.1 bbl, while international crude benchmark Brent for May delivery shed $0.88 bbl to $82.08 bbl. NYMEX April RBOB futures fell back to $2.5272 gallon, down $0.0276 gallon, and April ULSD futures eroded $0.0538 to $2.6409 gallon.

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

Liubov Georges